Sunteți pe pagina 1din 34

4

RURAL TELECOM

PART I RURAL TELECOM AND IT


Pradip Baijal and Rekha Jain

INTRODUCTION

conomic reforms in the post-1991 era have radically


changed the Indian economy with maximum impact
on the telecom sector. Telecom regulations and the
explosion of competition in the telecom market raised
teledensity in India dramatically to 12.7 per cent in 2006 from
1.94 per cent in 1998. However, not much has changed for the
more than 70 per cent of the Indian population living in rural
areas and this is a major cause for concern. In 2006, we find that
the rural teledensity is still hovering around 2 per cent (from
0.4 per cent in 1998), whereas urban teledensity is above 35
per cent. In metros like Delhi, Mumbai, Bangalore, and
Chennai, the tele-density is around 50 per cent (TRAI 2005b).
Since teledensity has a positive relationship with the level
of development, the large differential between rural and urban
tele-densities is a symptom of serious developmental differentials
as well and should receive adequate policy attention both in
terms of analysing the causes as well as for devising strategies
for bridging the gap viably.1 TRAIs observation that, A time
has come that our policies of reaching telecom to villages are
looked at as Universal Service Opportunity rather than
Universal Service Obligation, is appropriate (TRAI 2005b).
Access to telecom services including internet and broadband
services, provides new and exciting opportunities for the
1

See Part II on Accelerating Rural Telecom Penetration:


An Empirical Analysis.

users. Rural populations suffer the double jeopardy of not


having proper road and public transport facilities and other
infrastructure of urban areas in addition to being deprived of
telecommunication services as well. This intensifies economic
imbalances and inequalities which are already in staggering
proportions.
Communication technologies help in poverty reduction in
three ways: (i) increasing the efficiency of the individual and
thereby, of the entire economy, (ii) ensuring better delivery of
public services, such as health and education, and (iii) creating
new sources of employment, income, and training particularly
for the poor population. Low cost wireless solutions are now
available for rural areas at affordable prices. Business innovations
such as pre-pay options have reduced the entry price at the
lower end of the market and enabled easy access for multiple
services in areas where fixed telephone infrastructure is poor.
Rural India will ultimately define the core strength of the
industry, since the sheer volume of potential connections is
immense. Inclusion of rural users in the customer base will
strengthen the network and enable it to deliver multiple
services in communication-starved rural areas. Since the prices
of wireless telephony and communications both at the entry
level as well as the recurring expenses have come down
drastically due to overall growth, there is a huge demand for
such services in rural areas also. However, dispersed and low
density rural markets make it less profitable for private operators
to enter such areas and compete with cheaper fixed line
telecom rates in rural areas.

76

India Infrastructure Report 2007

An important trend is the emergence of community access


to both basic and value added services. While individuals in
many poor locations may not be able to afford the upfront
costs of owning telephones and internet-enabled PCs, a
community as a whole may be able to afford the facility. As
entry costs of mobile telephones and PCs and their recurrent
costs are plummeting, particularly when viewed from the cost
benefit perspective, the scenario is changing rapidly.
Rather than the present model where only one (or a few)
connection is given in a village at prohibitively high prices
with consequently high capital and yearly subsidy implications,
a one time subsidy to the service providers would go a long
way in creating a rural telecom market where services can be
delivered efficiently in a competitive environment.

40

37.99

35
30

26.2

25

21.3

20
15
10
4.8
5 4
1.6
1.3
0.3
0 0.3

5.8
1.9
0.4

6.9

8.2

2.3
0.5

2.9
0.7

10.4
3.6
0.9

12.2

4.2
1.2

14.3

5.1
1.5

7.04
1.7

9.08
0.74

12.86

1.86

Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06
*Population taken as 1088 million
Urban

Rural

Total

Fig. 4.1.2 Rural and Urban Tele-densities (19962006)

STATUS OF RURAL TELEPHONY

Source: TRAI (2005b and 2006).

Indias tele-density in 1948 was 0.02 per cent. The telecom


industry was for the exclusive preserve of the public sector. All
Five Year Plans, and successive governments placed strong
emphasis on telecom development. Yet in 1998, the tele-density
was only 1.94 per cent, displaying an incremental growth of
1.92 per cent in the fifty year period post-Independence,
indicating an average yearly growth of 0.04 per cent. After the
introduction of telecom regulation in 1997 and liberalization
of the sector, growth accelerated 12.5 times over the nonliberalized monopoly years. Competition regulation was
introduced in 2003 and it led to a growth of 2 per cent in
20034 and again in 20045. With stabilization of competition
regime, tele-density increased by about 3 per cent in 20056
and at the present monthly rate of growth, it would increase
by more than 5 per cent during 20067, 125 times the growth
in 194898 (Figure 4.1.1).

25
22.5

Tele-density

20
15
11.5
10
6
5
0

1.94

0.02

1998

1948

Stage I

2005
2003 2007

II III IV

Year Ending

Fig. 4.1.1 Telecom Growth: The Changing Scenario


Source: TRAI (2005b) and TRAI (2006).

Despite governmental concern for rural tele-connectivity


and allocation of huge USO funds for rural telecom, there has
been no substantial growth in rural areas and the rural growth
curve pre- and post-liberalization looks remarkably flat (Figure
4.1.2). This is perhaps on account of the fact that mobile
technology, the vehicle for growth in urban areas has not
been introduced in rural areas. Competition in rural telecom
is virtually non-existent and the government is the monopoly
provider not unlike the 194898 scenario countrywide.

EVOLUTION OF THE TELECOM SECTOR:


LESSONS FOR RURAL TELECOM
Though manufacturing of telecom equipment by the private
sector was permitted in 1984 and some services like radio
paging were also opened for the private sector in 1992, the
reform process only started after the issuance of the National
Telecom Policy, 1994 (NTP 94), which called for bidding
for private licenses and setting up of an independent regulator.
However, the mere entry of private operators in the network
did not help. The competition really started after a regulator
was appointed in 1997 following the promulgation of the
TRAI Act 1997 and it made effective interventions to create
a level playing field for new entrants. The Regulator issued the
first tariff order in 1999 and thus the reform process really
started during the late 1990s. Some problems were identified
in NTP 94 and in the implementation of TRAI Act, 1997.
High Court also quashed the powers of TRAI to enforce
interconnections. This led to the issuance of NTP 99 and
amendments in the TRAI Act in 2000. Interconnection
problems started again in 2004 by the Telecom Disputes
Settlement and Appellate Tribunal (TDSAT) questioning
these powers. These issues are now being debated before the
TDSAT and the Supreme Court.

Rural Telecom

Roll out
obligation

Competition

USO
Funding
Policy

Termination
charges

Access
Deficit
Charge
Universal Service
Objectives
Government
funding

Tariff Policy

Rural Service Providers


/Niche Operators (under
consultation)

Fig. 4.1.3 Factors affecting Universal Service Objectives

Subscriber Base (in millions)

120
101
100
90.14
80
60

52.22

40

33.7

20
0

1.19

0.88
1998

1999

1.86

2000

13

3.58
2001

6.54

2002

2003

2004

2005

2006 May-06

Fig. 4.1.4 Mobile Phone Growth


Source: TRAI (2005b and 2006).

120

Subscriber Base (in millions)

Prior to liberalization in the mid-1990s local calls, national


long distance calls, and international calls were either managed
by the government or by government companies and this
network constituted a vertically integrated natural monopoly.
Post-liberalization the network elements were effectively broken
up and private players started building network elements
leading to many competing public and private players.
The growth in the sector came in after the Government
of India/TRAI made major changes in the policies, structure,
and the regulation in the telecommunication sector. All
stakeholders also responded positively. As can be seen from
Figure 4.1.3, the Universal Service Objectives are affected by
a number of policies and it would be necessary to analyse the
implications of the same before implementing a plan to increase
rural tele-density.
Even after the implementation of reforms, tele-density
picked up slowly and increased from 1.94 per cent in 1998 to
5.11 per cent in 2003, that is, an average incremental growth
of 0.6 per cent per year. The growth substantially picked
up after 2003, when the regulator ceased to micromanage
tariffs by replacing the cost-plus tariff regulation by
competition regulation in urban areas. The regulator also
substantially reduced interconnection charges and Access
Deficit Charges (ADC). During this period, the government
also substantially and continuously decreased revenue share.
The changes led to drastic reductions in tariff to levels
among the lowest in the world, despite higher taxation in
India. Based on current monthly growth rates, over 5 per
cent increase during 20067 can be expected. It would be
worthwhile to look at the tele-density growth graph again
and examine the growth engines during various phases and
then examine the rural tele-density graphs for reasons of
increasing divergence.
During 20036, 88 million mobile and 12 million fixed
line telephones were added, and this addition too was basically
wireless technology driven (Figures 4.1.4 and 4.1.5).

77

100
80
60

50

40
20

17.8

21.61

26.65

32.71

38.43

41.48

42.84

46.19

0
1998

1999

2000

2001

2002

2003

2004

2005

2006

Fig. 4.1.5 Growth of Fixed line Telephone


Source: TRAI (2005b and 2006).

Private operators contributed prominently to post-1998


growth. Where public sector operators expanded their
subscriber base in 19982006 by 32 million, the same for
the private sector was 80 million subscribers. It is remarkable
that public sector undertakings whose growth was very slow
during the monopoly period of 1948 to 1998, that is, about
0.3 million subscribers every year, increased to about 5 million
subscribers every year during the period 1998 to 2005. The
publicprivate cooperation and competition led to immense
improvement in the performance of both the public and
private sectors (Figure 4.1.6). We can only infer from this
that companies behave very differently in monopoly and
competitive environments and consumers gain only when
competition is introduced in markets.
The measures taken by TRAI to reduce tariffs-encouraging
competition, introduction of Unified Access Licensing
Regime, introduction of calling party pays regime, lowering
of ADC from 30 per cent to 10 per cent of the sectoral revenue
and later to 5 per cent, allowing cheaper handsets being
sold at the time of delivery (with rest of the money charged
in installments), allowing cheaper intra-network calls and
fixation of very low termination charges, thereby increasing

India Infrastructure Report 2007

Effective charge (in Rs per min.)

Subscriber Base (in million)

80
70
60
50
40
30
20
10
0
1998

1999

2000

2001

2002

2003

2004

2005

2006

Year Ending
Private Sector

Launch of Lifetime Scheme 102.00

102.00
96.00
90.00
16.00
NTP 99
84.00
Lowering of ADC
14.00
Telecom
75.92 78.00
from 30% to
72.00
Tariff
CPP
12.00
66.00
introduce
65.05
60.00
10.00
Wll
54.00
52.17
3rd & 4th introduce
48.00
8.00
Cellular
42.00
36.00
6.00
33.60
30.00
24.00
4.00
18.00
13.00
12.00
2.00
6.50
6.00
1.88 3.58
0.00 0.00 1.20
0.00
Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Sep- Dec- May05
05
98
99
00
01
02
03
04
05
06
18.00

Reduction

Fixed

Mobile (Rs/min)

Mobile sbuscribers (in million)

90

Mobile Subscriber base (Million)

PSUs

Fig. 4.1.7 Mobile Growth and Effective Charge per Minute

Fig. 4.1.6 Subscriber Base of PSU and Private Sector Operators

competition at origination, a place where tariffs are fixed-led


to the phenomenal growth (Figure 4.1.7). The government
encouraged the process by changing high entry fee to revenue
share and reducing the revenue share further in 2001, 2003,
and 2005.
Despite a severe drop in tariffs, the income of telephone
operators went up sharply due to the increase in the number
of subscribers (Figure 4.1.8).
It was thought initially that reduction in revenue share
would lead to severe contraction in government revenues. The
introduction of service tax on telecom services in 19992000,
however, led to a substantial increase in government revenues
from mobile telephone despite severe reduction in tariffs (TRAI
2004). If we look at the total revenues from all telecom services
they also increased exponentially after 20023 (Table 4.1.1).
There could be no better example of growth in revenue
from lower taxation/tariff. But even today, the taxes and duties
on telecom services are very high and need further reduction,
particularly to universalize these services in real terms, which
is now possible, and especially in rural areas. Despite very
heavy taxation vis--vis other neighbouring countries, tariffs
in India are the lowest in the world, a tribute to the competition
in the sector and our operators (Table 4.1.2).
Fixation of very low termination rates in India has led to
aggressive competition in origination, leading to the lowest
call rates in the world (Table 4.1.3).
The analysis above clearly reveals that the factors leading
to high telecom growth have been:
1. Introduction of mobile technology which allows telecom
services to be offered at lower costs,
2. Healthy competition among large number of public/private
operators,

Source: TRAI (2005b and 2006).

Subscriber Base (million)

Source: TRAI (2005b & 2006).

1400

100
90
80
70
60
50

1200
1000
800
600

40
30
20
10
0

400

ARPU (Rs/month)

78

200
0
2000

2001

2002

2003

Subscriber Base

2004

2005

2006

ARPU

Fig. 4.1.8 Growth of Mobile Subscriber Base with Reducing


Average Revenue per User (ARPU)
Source: TRAI (2005b and 2006).

3. The government and the regulator facilitating fall in tariffs


by various measures including reduction in taxation and
interconnection rates on the sector.

Internet and Broadband


The growth of internet and broadband in India has been tardy
both in comparison to the growth of telephony as well as in
comparison to some of our neighbours. The reasons are not
far to seek. Mobile technology has kickstarted telephony growth.
Internet/broadband in its traditional sense cannot be delivered
through these networks. The entry price for these services is
very high (because of the cost of a computer terminal), and
like mobile telephony, internet, broadband tariffs were also
very high in the initial years. Consequent to the Broadband

Rural Telecom

79

Table 4.1.1
Estimate of Government Levies from Licence Fee, Spectrum Fee and Service Tax on Telecom Services
(Rs Crores)
Year
20023
20034
20045
20056
20067
20078

Gross
Revenue

Pass
through

48,000
61,000
72,000
87,000
126,969
147,500

Adjusted
Gross Revenue

7200
9150
15,549
17,935
36,821
29,500

40,800
51,850
56,451
69,065
90,148
118,000

Licence
Fee *
4080
4770
5182
6264
8176
10,703

Service
Tax #

Spectrum
Charge **

Total Govt.
Levies

2192
3024
4470
5186
8780
11,493

206
434
711
1409
2344
3304

6478
8229
10,363
12,859
19,301
25,500

Notes:* For telephone, cellular mobile, NLD, ILD, Internet service, varies from 0 to 15 per cent up to Dec 2005 and 0 to 10 per cent Jan06
onwards.
# Actual service tax collected has been taken from 20023 to 20056 and Service tax applied to Adjusted Gross Revenue for the other years
as it is not charged on Interconnection Usage Charges, and so on. Service Tax rate for 20068 is 12.24 per cent.
** Spectrum charge varies from 2 per cent to 4 per cent depending on amount of allocated spectrum. Weighted Average Spectrum Fee for years
20023 to 20078 is estimated as 3 per cent, 3.4 per cent and 4 per cent respectively. Adjusted Gross Revenue from wireless service.
Source: Service providers data and TRAI (unpublished information).
Table 4.1.2
Telecom Sector Levies in Pakistan, Sri Lanka, China, and India
Pakistan

Sri Lanka

Sector Charges
Service Tax, GST
Licence Fee

GST
0.5% + 0.5% R&D

Spectrum Charges

Cost recovery

VAT
0.3% of turnover (T.O.) +
1% of capital invested
~ 1.1% of T.O.

USO
Total Sector Charges

1.5%
2.5% + GST + cost reovery

Nil (only on ISD calls)


~1.3% T.O. + 1% inv + VAT

China

India

3%
Nil

10% + GST
510%

~0.5%**
(China Mobile)
Nil
~0.5% + 3% (Tax)

26%*

Percentage of revenue

Included in license fees


17%~26% + GST

Notes:* Backbone spectrum charges extra.


** Estimated from spectrum fees & revenue of China Mobile.
Source: Information from Regulators website & TRAI.
Table 4.1.3
Call Charges per Minute of Use, ARPU and Termination Rates Per Minute for Mobile Service in Different Countries (June 2004)
Name of the
country
Australia
Brazil
China
Switzerland
Japan
India

Call charge
per minute

Use/subscriber
per month

ARPU (Average
Revenue Per User)

US$

Minutes

US$

US$

US$

0.24
0.11
0.04
0.45
0.33
0.04*

159
92
261
119
156
309

43
11
10
59
63
11

0.016
0.020
0.010
0.017
0.022
0.007

0.152
0.080
0.025
0.163
0.130
0.007

Note: *Has come down to 0.03 in 2005lowest in the worldand going down further.
Source: TRAI 2004 & (2005b).

Termination rates per minute


Fixed
Mobile

80

India Infrastructure Report 2007


Table 4.1.4
Growth of Internet & Broadband and Tariffs (20032006)

Internet Subscribers
per hundred persons
Monthly charges for
average usage of internet
(in $)
Broadband Subscribers
per hundred persons
Monthly charges for
average usage of
broadband (in $)

Mar2003

Mar2004

Mar2005

Mar2006

0.4

0.45

0.51

0.63

9.5

5.0

4.6

0.019

0.02

0.03

0.09

21

12

kms of any habitation that is, one telephone in a hexagon of


size five sq km), Gram Panchayat Phone (one phone in each
gram panchayat), and Village Public Telephone Programme
(one phone in each revenue village). In liberalizing the access
segment, post-NTP (National Telecom Policy) 1994, specific
VPT (village public telephone) roll out obligations were
specified in the licenses. However, these commitments remained
largely unmet. Most of the VPTs till date have been provided
by BSNL. As on 31 March 2004, 5.22 lakh villages out of a
total of 6.07 lakh had telephone access and of these 5.09 were
provided by BSNL.

5.5

Source: TRAI (2006a).

Policy issued by the Government in 2004, and reduction in


DLCC and IPLC tariffs enforced by the regulator, internet
and broadband tariffs have declined and the services are now
picking up (Table 4.1.4). However, since fixed line is almost a
monopoly of the incumbent and last mile not unbundled, the
absence of competitive multi-operator environment continues
to retard the growth. Private operators mostly deliver broadband
on cable TV circuits only and the monopoly last mile holder
only provides broadband on 0.5 million lines in comparison
to a resource of about 25 million lines with the incumbent, even
assuming only 50 per cent lines to be broadband compatible.
This is despite the fact that the government has been laying
emphasis on broadband connectivity for several years now.
The immense unfulfilled demand for broadband is made
apparent by the fact that a much inferior service of dial up
internet has acquired a large number of subscribers despite
high tariffs. Unless broadband delivery is made competitive by
last mile unbundling, take off will be slow as demonstrated by
our experience with monopoly provisioning of voice services.
The presence of both public and private players in all these
sectors and a framework allowing for maximum competition
will open up the next phase of telecom revolution, including
broadband and TV services. TRAIs recommendations in this
regard were sent to the government on 13 January 2005
wherein it was recommended that a unified licensing regime
should be introduced for all telecom services to encourage
free growth of new applications and services.

REVIEW OF RURAL TELECOM POLICIES


Before liberalization, universal service objectives were met by
the government through a series of programmes like Long
Distance Public Telephone Programme (progressively increasing
the scope to the provision of a public telephone within five

New Telecom Policy 1999 and the


Universal Service Objectives
In 1999, the Government announced the New Telecom Policy
that is, NTP 1999. Universal Service was one of the main
objectives of NTP 1999. The policy outlined the following
specific Universal Service targets:
1. Provide voice and low speed data service to the balance
2.9 lakh uncovered villages in the country by the year 2002.
2. Achieve Internet access to all district headquarters by the
year 2000.
3. Achieve telephone on demand in urban and rural areas
by 2002.
In addition NTP 1999 also set the following targets:
1. Make available telephone on demand by the year 2002
and sustain it thereafter so as to achieve an all India teledensity of 7 per cent by the year 2005 and 15 per cent by
the year 2010.
2. Encourage development of telecom in rural areas through
suitable tariff structure and by making rural communication
mandatory for all fixed service providers.
3. Increase rural tele-density from the current level of 0.4 to
4 by the year 2010 and provide reliable transmission media
in all rural areas.
4. Achieve telecom coverage of all villages in the country and
provide reliable media to all exchanges by the year 2002.
The NTP 99 and the consequent creation of the Universal
Service Obligations Fund led to the development of a policy
and regulatory framework for managing Rural Telecom Services
(RTS). The targets set by NTP 1999 and the achievements till
March 2004 show that there is an excellent progress in all
areas except rural connectivity (Table 4.1.5). The targets for
overall voice connectivity by 2010 would be overachieved by
a wide margin.
In 2002, USO Fund was established to fund specific USO
targets set by NTP 99. In addition, open competition was
introduced to create pressure on service providers to expand
coverage and to reduce subsidies. This resulted in steep
reduction in mobile and long distance tariffs and increased

Rural Telecom

81

Table 4.1.5
NTP 1999 Targets, Achievements, and Shortfalls
NTP 1999 Targets

Eligibility for USO


Funding (NTP 1999)

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 headquarters by the
year 2000
Achieve telephone on demand in urban and rural areas by 2002
Teledensity of 7 by the year 2005 and 15 by the year 2010

Achievement (March 2004)

Yes

5.22 out of 6.07 lakh

Yes

Achieved

Yes
No

Urban demand largely met, Rural unmet


Tele-density 7 achieved in March 2004,
and 15 likely by Dec 2006
Rural Tele-density 1.7 in March 2004

Rural teledensity from the current level of 0.4 to 4 by the


year 2010
Reliable media to all exchanges by the year 2002

Partly

High-speed data and multimedia capability using technologies


including ISDN to all towns with a population greater than
2 lakh by the year 2002.

No

No

30000 out of 35000 exchanges on fibre


and several on microwave and satellite
NA

Note: NA: not available.


Source: Compiled by author.

USO Fund and Amendment in the


Indian Telegraph Act 1885
On 9 January 2004, the Indian Telegraph Act 1885 was
amended to provide the USO Fund (USOF) a statutory nonlapsable status. The Act states, Universal Service Obligation
means the obligation to provide access to basic2 telegraph
2This was interpreted to mean service provision through fixed and
fixed wireless technologies. The government has amended the Act to
include mobile services in rural areas (see Chapter 1 of this report).

Number of VPTs (in lakhs)

0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
20001

19992000

20012

20023

20034

Fig. 4.1.9 Yearly VPT Additions


Source: TRAI (2004).
Number of Rural DEL addition (in million)

choices for consumers. However, concerns regarding slowing


down of VPT/Rural Direct Exchange Lines (DELs) roll out
have arisen. The yearly increments in VPTs/Rural DELs
indicated below confirm the deceleration despite adequate
availability of funds (Figures 4.1.9 and 4.1.10).
The prime reason is apparently the increased focus on
cellular mobile infrastructure deployment after 20012 by all
operators at the cost of fixed line and rural investments due to
very high per capita costs of providing fixed line connectivity.
Also, a large number of rural DELs installed by BSNL, based
on Multi Access Radio Relay (MARR) technology did not work
and had to be replaced at government cost. Since the present
dispensation only adds one or two telephones in a village, the
maintenance arrangements are inefficient, putting the entire
roll out programme in jeopardy. The bustle of the cellular
market has almost completely by-passed the rural client because
the government does not support mobile telephony through
USO fund for rural areas in a focused and targetted fashion.

2.5
2

1.5
1
0.5
0
19967

19978

19989 19992000 20001

20012

20023

20034

Fig. 4.1.10 Yearly Rural DELs Additions (in millions)


Source: TRAI (2004).

82

India Infrastructure Report 2007

services to people in rural and remote areas at affordable and


reasonable prices. The USO levy is presently 5 per cent of AGR
and comes out of the license fees paid to the government. The
implementation of USO is through a multi-layered bidding
process. The Fund is being administered by the Department
of Telecom through Universal Service Fund Administrator,
an establishment set up by the government in 2004. Though
the fund is non-lapsable, the proceeds are credited to the
Consolidated Fund of India and can only be withdrawn
through the budgetary process, that is, after the expenditure
every year is approved as a part of the budget. Thus control
of the fund lies with the Ministry of Finance and the details
of the scheme are controlled by the USOF Administrator.
Until recently as per prevailing policy, USOF did not
subsidize mobile services making it difficult for service providers
to take such networks to rural areas on their own. Consequently,
prohibitively expensive fixed lines were laid in rural areas. These
were then heavily subsidized through USOF to enable service
providers to offer low rates to customers. This practice has
been replaced by a policy which encourages low cost mobile
technology to enter rural areas through a subsidization plan
for service providers that is much more viable than what is
presently incurred in terms of subsidy costs. TRAI had
recommended strategies that clearly demonstrated that minor
tweaking of the policy provisions could prevent subsidies from
flowing into unviable phones. One or two phones subsidized
in an entire village in the absence of a developed telecom
market in a village would not change anything. We would
also lose the opportunity to create a much more viable telecom
market where the villager would no longer complain: why
should I buy a telephone? I cannot talk to anyone in a village.
All other phones are only public call offices.

Present Status of USO Fund Receipts


and Disbursements
Around Rs 500 crore have been disbursed to telecom service
providers during the two financial years, 20023 and 2003
4, and Rs 1315 crore in 20045 to provide telecom services in
rural/remote areas. These services mainly include maintenance
of existing VPTs, replacement of VPTs working earlier with
MARR technology (which did not work and had to be replaced
at government cost) and subsidy to existing rural DELs.
Telecom operators contributed 5 per cent of their adjusted
gross revenue to the USOF.

Minimizing the Cost of Increasing Penetration of


Telecom Services in Rural Areas
The government had finalized the guidelines which
provide that the following activities will be supported by
the USOF, namely:

Table 4.1.6
Collection and Disbursement of USOF (Rs crore)
Financial Year

Collection

Disbursement

Balance

20023

1654

300

1354

20034

2143

200

3297

20045

3458

1315

5440

Total

7255

1815

5440

37541

17937

25044

200510(est.)

Source: Information received from office of USOF, DoT.

1. Operation and maintenance of village public telephones


(VPTs).
2. Provision of additional village community telephones in
villages with a population above 2000, after achieving the
target of one VPT in every village.
3. Replacement of MARR based VPTs installed before 2002
which did not work.
4. Upgradation of a public telephone to Public Telecom and
Information Centres (PTICs) in villages with a population
of more than 2,000, for providing data application
including FAX, email, internet besides voice telephony.
5. Installation of high speed PTICs for providing additional
facilities including tele-education and tele-medicine at
block headquarters and in villages with a population
exceeding 2000.
The amount of support from USOF for the above
mentioned activities excluding rural DELs will be around Rs
3300 crore for the commitment period ranging from five to
seven years for Rural Community Phones and VPTs in
uncovered villages and for existing VPTs including MARR
replacements. The balances in USO fund can allow the
Government to take up more activities and if the USO is
extended to mobile infrastructure, as recommended by TRAI,
mobile telephony in villages can yield dramatic results.
Even with the current collections and disbursals from the
USOF, the targets of NTP 99 can be barely met. Therefore,
an alternative is to examine the provision of USOF support
for network infrastructure providers as well as mobile infrastructure providers (Jain, 2006). The USOF provides support
for rural DELs in 1685 net high cost SDCAs. It is estimated
that 6.6 million additional rural DELs will be installed in
these 1685 SDCAs by the year 2007, which will be eligible
for support from the USOF. The amount of support from
USOF for the new rural DELs beyond 31.3.2005 was around
Rs 11,000 crore for the period of commitment (Tables A4.1.1
and A4.1.2).
An additional amount of around Rs 2600 crore is likely
to be required for upgrading the DELs which were installed
in these SDCAs from April 2002 to March 2005. Besides these
6.6 million DELs in 1685 SDCAs, some additional rural DELs

Rural Telecom
will also get installed in the remaining SDCAs by the year
2008. Thus, including the existing 13.6 million rural DELs,
the rural tele-density may still not reach the 4 per cent target
by the year 2010, after providing a subsidy (including VPTs)
of around Rs 17,000 crore. In fact, if all rural DELs installed
after 31.3.2002 are provided USOF support so as to reach a
target of 4 per cent rural tele-density by 2010, then the total
support amount including support for VPTs and so on would
be around Rs 25,000 crore (Table A4.1.3).
It needs to be pointed out that rural DELs have been
receiving support from ADC since 2003 which will conclude
and merge with USOF in 2008. The rural DELs will get a
further subsidy of around Rs 5000 crore from USOF beyond
2008, if the present approach of USOF subsidy to fixed line
DELs continues. Rural areas cannot be expected to live with
such low tele-densities and that too, at such high subsidy
cost particularly, when it is possible to substantially increase
tele-densities in rural areas with the help of new technologies
and regulatory regimes in line with urban areas.

BARRIERS TO PENETRATION OF TELECOM


IN RURAL AREAS
Network Coverage
We can now examine the reasons why the telecom revolution
failed in rural areas. Mobile technology, the primary factor
in the rapid increase in urban tele-density, is not supported
in rural areas by adequate Base Transceiver Station (BTS)
infrastructure (towers, power supply, and so on). In 20034,
mobile networks covered mere 1700 of the 5200 towns in India
and hardly any villages. The total population of subscribers
catered to by these networks came to 200 million, all urban.
The number of rural subscribers was negligible (TRAI 2004).
Since the mobile tariffs have decreased considerably, there
is a huge demand for mobile telephones in rural areas but unless
mast heads cover rural areas this demand will remain unmet.
TRAI (2005a) discussed the coverage aspect with mobile
operators and the operators agreed to launch a telecom
expansion plan as given in Table 4.1.7.
However, the implementation of the plan has thus far been
adequate only in the densely populated and hence, more
profitable urban areas. If government policies are implemented
through USOF subsidies to ensure competitive rural coverage
of mobile network, rural tele-densities can start approaching
urban levels. Also if these networks can deliver multiple
services, their economy would further improve.
Doubts have often been raised regarding the existence of
a commercial market for mobile phones in rural areas. However,
international case studies on comparative mobile tower coverage
in similar countries suggest that the market does exist and such
coverage is eminently practicable. In consultation with the

83

Table 4.1.7
Proposed Network Coverage by End 2006; Operators Plan

Towns
Rural areas

By area

Population Coverage
(~75 per cent)

~4900 out of 5200


~350,000 out of 607,000
villages

~300 Million
~450 Million

Source: TRAIs IUC Regulation dated 06.01.2005.


Table 4.1.8
Mobile Coverage in Selected Countries, by region, 2002
Region

Country

Africa

Cape Verde
South Africa
Togo
Zambia
El Salvador
Ecuador
Guatemala
Mexico
Jordan
Morocco
Korea Rep.
Malaysia
Philippines
India
Azerbaijan
Belarus
Czech Republic
Slovak Rep.

Americas

Arab States
Asia-Pacific

Europe

Pop. Covered by mobile signal


90%
93%
90%
50%
85%
86%
68%
90%
90%
95%
99%
95%
70%
20%
94%
72%
99%
98%

Source: ITU World Telecommunication Indicators Database.

operators TRAI suggested a population coverage target of 75


per cent by the end of 2006. Later experience showed that
this figure is not easy to reach and requires incentives to be
given by the Government and policy change viz. making
mobile infrastructure subsidy eligible for USO, encouraging
the sharing of towers and so on.
It is probable that the present average revenue per user
(ARPU) of Rs 322 per month (approximately $7) in the
telecom sector will go down further if the operators enter
rural areas. Research tells us that Indian cellular operators can
remain profitable even at an ARPU of $4 per month (Morgan
Stanley, 2005). Hence, operators can profitably expand into
non-covered and rural areas. In any case, operators are already
offering some tariff packages that assure ARPU of over $4 per
month. The recent policy initiative regarding subsidizing
mobile phone operators networks needs to be aggressively
implemented.

84

India Infrastructure Report 2007

Backbone Infrastructure
Currently around 670,000 route kilometers of optical fibre
is laid across India. Of the 35,000 exchanges in the country,
30,000 exchanges of the incumbent have OFC (optical fibre
cable) connectivity (these include OFC connectivity of about
27,000 exchanges in rural areas). In addition, satellite systems
offer high bandwidth connectivity all across India through
VSAT. In spite of the existence of this nationwide fibre
network adequate connectivity to villages is not available to
an entrepreneur other than the facility owners (which is the
BSNL). The cost of installing backbone infrastructure in
semi-urban and rural areas for a new entrepreneur can be
substantial, and it is in the interests of economic efficiency
that the existing infrastructure be fully utilized. The problem
is that the facility owners are not willing to share their
infrastructure commercially with the private operators.
The only additional capacity available is that with
infrastructure service providers (IP-1 & IP-2). The World Bank
study in this regard has identified that the capacities available
in the country are quite substantial (TRAI 2005a). In actual
practice, last mile connectivity sometimes seems to be the
limitation. In addition, there are no uniform, clear, applicable,
and enforceable guidelines for various procedures such as right
of way, municipal and civic clearances and so on. As a result,
different state governments adopt different rules, criteria, costs
and time frames, which have significant time and cost
implications for the operators in obtaining requisite clearances.

Infrastructure Sharing
According to industry estimate, setting up a cellular tower
(BTS) costs around Rs 50 lakh inclusive of equipment, power
plant and so on (TRAI 2004). A significant number of existing
cell sites is already being shared by competing operators across
the country mainly in urban areas. In rural areas, too, sharing
infrastructure will reduce costs and the advantages may be
substantial, depending on how win-win deals are struck by
operators. The incumbent and the owner of majority of the
rural infrastructure does not wish to give up its first mover
advantage by sharing infrastructure. However, other operators
who have experienced the advantages of sharing of infrastructure
in urban areas are quite keen on the arrangement. The choices
range from voluntary sharing to government/TRAI mandated
sharing of infrastructure. If it is mandatory sharing, it follows
that TRAI must fix rates on forward looking long run increment
cost principles, universally adopted by network regulators to
ensure growth.
It is a matter of deep embarrassment for the government
that in Andhra Pradesh, the incumbent is charging such
usurious rents that the laid fibre remains dark and operators

are forced to lay alternate fibre or try alternate modes of delivery.


The huge rural demand for knowledge based networks remains
unfulfilled. The incumbent has nothing to lose from poor
capacity utilization of its network, because it is subsidized by
USO funds or ADC or license fee waiver. Consequently, a
network laid at the expense of the taxpayers money in the
name of rural connectivity remains unutilized. It must be
ensured through policy or regulatory intervention that these
networks are effectively utilized.

Tapping Effective Demand for Rural Telecom Services:


Purchasing Power is not a Barrier
A demand side analysis will help to differentiate the areas where
services may be provided in a commercially viable way from
those where support will be required to enable provision. The
increasing purchasing power of rural Indians (Tables 4.1.9
and 4.1.10) and a similarity in the purchase basket with those
of urban areas increasingly indicates an ability to purchase
telecom services and the low rural tele-density in some areas
may indicate supply side constraints. (For statewise analysis,
please see Part II of Chapter 4.)
Subscribers buy telephones when they can afford it. If we
look at tele-density in India and in other countries with similar
Gross National Income (GNI) per capita on purchasing power
parity (PPP) basis, it appears that India can also increase
its tele-density very fast based only on income indicators
(Table 4.1.9).
It is interesting to note that while in percentage terms, the
middle to high income households in rural areas are nearly onethird of those of urban areas, in absolute terms these numbers
are almost the same. Further, in the lower middle-income group
also, while the percentage of rural households is just a shade
higher than urban households, in absolute terms, these constitute
nearly two and a half times the number in urban areas.
The cost-effectiveness of a given solution in providing
communication service in rural areas because of the spread
out characteristic of the subscriber base is a different
consideration and may require subsidization of the network
Table 4.1.9
Urban/Rural Income-wise Distribution of Households in 199899
(in millions)
Income Group
Rural Households
Urban Households
Lower

58.87 (47.94%)

9.31 (18.96%)

Lower Middle

42.77 (34.83%)

16.58 (33.76%)

Middle to High

21.16 (17.23%)

23.22 (47.28%)

Total

122.81 (100%)

49.11 (100%)

Source: NCAER IMDR 2002.

Rural Telecom
in rural areas. Any subsidization of individual telephones may
not be an appropriate policy, in view of the huge rural demand
and inevitable problems in implementing micro-managed
subsidization policies.
Indias rural market has been growing steadily over the
years and is now bigger than the urban market for FMCG (53
per cent share of the total market). Rural India also accounts
for a large pie of consumer durables/white goods, automobile/
two-wheeler/tractor sales among a host of other industry
sectors in our country. Table 4.1.10 presents the ownership
pattern of key durables.
According to the World Bank, wherever they are given the
choice, poor communities often spend on communications
as much as urban communities, in terms of percentage of
available income (World Bank, 2002). With wide network
coverage and affordable communication services, rural growth
can pick up substantially in a short time frame and this opens
the Universal Service Opportunity window, both for the
operators as well as subscribers.
The demand for mobile telephones is increasing very fast
even in small towns. Category C states have, on average, 85
per cent rural population, while Category A and B consist of
67 per cent and 75 per cent rural population respectively.
Further, Category C states, which include Himachal Pradesh,
Bihar and Jharkhand, Orissa, Assam, Sikkim, Tripura, Meghalaya,
Manipur, Mizoram, Nagaland, Arunachal Pradesh, and Jammu
& Kashmir, have on average lower per capita income than states
in other categoriesapproximately Rs 8000 as compared
to Rs 10,000 and Rs 13,000 for B and A category states
respectively. Yet, Category C circles have outperformed the
national and other Category averages in percentage growth

Total
Households
(millions)
Bicycle
Radios
Television
Motor
Cycles &
Scooters

Urban +
Semiurban

192

54

24.84
23.76
34.56
13.5

Rural

Total numbers
in millions
Urban +
Rural
SemiUrban

138

59.34
44.16
26.22
9.66

over multiple quarters, in terms of both GSM and CDMA


subscribers (albeit on smaller base). Consequently, we can
contest the claim that areas with higher rural populations or
lower economic status are not attractive for investment in
telecommunications infrastructure.
Since the demand for goods in rural areas has grown several
folds in recent years, our policies should now concentrate on
expanding the supply of telecommunication services to rural
areas. The government should substantially compensate such
infrastructure from USO funds to facilitate explosive rural
growth in telecom. Schemes should be simple and free from
bureaucratic intervention if one is serious about replicating
the urban growth model in a time bound manner.
There is another feature of the Indian telecom market
that characterizes the consumer profile very distinctly. Unlike
other countries, where fixed line telephones far outstrip cable
TV connections, the growth of cable TV services in India
has been remarkable (Table 4.1.11).
The remarkable growth in cable TV which has connected
more houses by wire without any government support,
allocation or subsidy, vis--vis fixed line telephony where far
fewer houses have been connected despite huge demand as
indicated by long waiting lists, clearly shows:
1. Whenever the Indian government has allowed entrepreneurs
free choices with non-draconian regulation, providing an
environment for the expansion of business, they have
flourished (Jain, 2001).
2. Indian consumers value multi-sourced information
(here, cable channels in addition to Doordarshan) and
entertainment (Star plus, Sony, Zee TV, and so on) much
Table 4.1.11
Number of Cable Subscribers and Number of
Fixed Line Telephone Subscribers (2003)

Table 4.1.10
Urban-Rural Markets

All India

85

46
44
64
25

43
32
19
7

Source: TRAIs study paper on Indicators for Telecom Growth dated


30.06.2005c (TRAI, 2005b).

Name of the
country
Australia
China
United Kingdom
Japan
Korea
Taiwan
Thailand
United States
India

No. of cable TV +
DTH subscribers

(In millions)
No. of fixed
line connections

1.55
105.00
10.50
8.10
11.94
5.30
0.43
94.97
61*

10.82
263.00
34.90
71.15
22.88
13.36
6.60
181.6
47*

Note: *Data for India is for 2005.


Source: TRAI study paper on Indicators for Telecom Growth dated
30.06.2005 (TRAI, 2005b).

86

India Infrastructure Report 2007

more than fixed line telephone services. This trend is not


the same anywhere else in the world, as shown in the table
above. The popularity of cable TV should be leveraged to
increase the penetration of communication services,
particularly in remote and rural areas. This can be
incentivised by encouraging rural triple (or more) play
networks. Such IP based next generation networks in place
of present switch based networks are already being
implemented in many countries. The operators can be
allowed this choice if a converged network is introduced
into the Indian telecom sector. Such an environment can
be enabled either through Convergence Bill (if it is passed
by the Parliament) or Unified Licensing (Unified Access
Licensing introduced already).
Once the rural areas get adequately connected, their
untapped energies may be released to produce results we cannot
even anticipate today. This has been convincingly demonstrated
by the efforts of pioneers such as ITC, N-Logue, and Akshaya,
and the experiences of the Indian IT industry, and the
experiences in urban voice networks. The isolated cases of
successful rural centres in Kerala, AP, Tamil Nadu, and
Karnataka need to be replicated in a time bound manner to
make a serious difference to the rural economy.

IT APPLICATION IN RURAL AREAS:


SOME INITIATIVES
Indian corporate, state governments, and NGOs have launched
several rural initiatives of different scales based on the latest ICTs.
The results throw new light on the rural telecommunications
scenario in terms of demand for services, possible modes of
supply, and financial viability of initiatives. The types of services
provided by the pilot projects through private initiative in
rural areas of India can be classified as follows:
1. Profit Driven Projects:
(a) ITC e-chaupal
(b) N-Logue
(c) Drishtee (using existing telecom infrastructure)
2. Grant/aid Supported Projects:
(a) MS Swaminathan Center (in Pondicherry, focused
on agriculture and fishing applications).
(b) Tara-haat (focus on rural enterprises).
(c) Akshaya (in Kerala with Government support).
(d) Gyandoot (in M.P. with focus on e-Governance)
operated by N-Logue.
(e) Rural e-Seva (in East Godavari District of AP with
focus on e-Governance).
(f ) Warana Village (in Maharashtra by NIC) operated
by N-Logue.
3. Application Development initiatives:
(a) Bhoomi
(b) Lokvani

4. Infrastructure Enhancing State Government Projects:


(a) Andhra Pradesh Broadband Network: Broadband
connectivity available across the state for offices, institutions, and homes at affordable costs (Jain, 2004).
The list of such projects is expanding and all may not
have been captured above. But there is a lesson in these
projects for all of us that, recognizing the benefits of rural
connectivity, corporate, educational institutions, NGOs, and
State governments have launched major projects which cover
thousands of villages and if these efforts could be integrated
into an appropriate policy framework, there would be an
explosive increase in rural connectivity/communications, the
kind of which has never been witnessed in India before.
We enumerate here four projects, namely, Lokvani, eChaupal, N-Logue and Andhra Pradesh Broadband Network
which have used different communication platforms. Policies
to promote commercialization can draw from the experiences
with all the platforms.

Lokvani
Lokvani is an e-Governance programme based on PCO
network, to improve governance in districts. There are four
important features of the programme. First, it uses PPP model
to improve governance at the district level. Second, it uses
existing PCO network. Third, the network uses software
provided by NIC which can be scaled up in other districts.
Fourth, deepening of services through Lokvani has been
demonstrated (Box 4.1.1).

ITC e-Chaupal
Based on V-SAT technology, ITC has covered over 25,000
villages with e-Chaupal at 4300 places in six states where
information about ITCs agricultural products, market, weather,
fertilizer requirements and their variety is provided (Box 4.1.2).
These e-Chaupals, besides providing connectivity and
information, also serve as ITC ground level outlets for
agricultural products. Products such as seeds and fertilizers of
guaranteed quality are made available at reasonable rates.
These chaupals also carry out other commercial transactions
with farmers such as purchase of agricultural produce, thereby,
eliminating the village middle men. The scheme has received
very positive response from villages since the villager is now
able to get better price for his crops in a transparent manner
and is assured of the quality and quantity of inputs that he
may purchase.3 He has the option of choosing the time of
sale based on market information. These services have led to
a communication revolution at the village level. By careful
planning, these networks can be used for other applications
including e-governance, e-health, e-education and so on.
3This

is assured by ITC employed area managers.

Rural Telecom

87

Box 4.1.1
LOKVANIPeoples Voice
Amod Kumar, Markanday Shahi, and A.P.Singh
Lokvani is an e-governance programme launched in publicprivate partnership with the combined efforts of both, the district administration
as well as the National Informatics Centre in the district of Sitapur (UP) which is home to 3.6 million citizens of whom 88 per cent are
rural inhabitants with a 38.86 per cent literacy rate. Lokvani is an outstanding example of a highly cost-efficient, economically self-reliant,
user financed community network. It has been projected as a commitment to the people in providing them with transparent, credible,
and accountable systems of governance. This system is grounded in the rule of law, encompassing civil, political, as well as economic and
social rights underpinned by accountable and efficient public administration for multiphase development of the rural people. The primary
objective of the IT solution is to bridge the digital divide and connect the common man to the strategy makers in a seamless fashion.
The Lokvani model has been formulated keeping in mind the three key stakeholders: (a) government; (b) the IT entrepreneurs/
Kiosk operators; and (c) the citizens. Since the IT literacy (and also any form of literacy) is very low in Sitapur, the Kiosks form an
interface between the IT enabled government and the IT illiterate citizens.

GOVERNMENT
A society by the name of Lokvani was constituted at the district level to implement the project autonomously and reduce some of the
bureaucratic pressures. All the financial decisions were taken under the purview of the society itself. The rationale for such a framework
is that the budgets of small districts have a limited scope for extra expenditure and the process of getting finance is a long drawn out
and complicated one. The Lokvani society meets its recurring expenses from the money received from the registration of Kiosks and
short term and lifetime membership fees. The initial costs for setting up the society were also negligible as the hosting services was
provided free of cost by the National Informatics Centre.

IT ENTREPRENEURS/KIOSK OWNERS
In the Lokvani system, Kiosk centres are set up in the existing cyber cafes and computer training institutes. This has ensured the financial
viability and long-term sustainability of the Kiosks due to an alternate source of stable income. This step ensured that supplementary
capital was not vital to the solution. The society signed contracts with existing Kiosk owners for the purpose of registering them as Lokvani
franchisees with only a nominal annual fee of Rs 1000. IT entrepreneurs run the Kiosks. A typical Kiosk has an internet enabled PC, a
printer and a webcam. It also has a CD ROM drive. Some Kiosks also have a power backup (typically, power is available five hours a day).
Kiosks earn profits from various services of Lokvani provided to the citizens. In addition, the Kiosks can also generate some extra revenue
by providing disparate facilities like computer education, computer typing, digital photography, internet access resulting in cross sales.

CITIZENS
The citizens form the customer base for which the model has been designed. The citizens save tremendous cost and effort in obtaining
government services, registering grievances and petitions, accessing land records, seeking employment opportunities or learning about
governmental schemes and services through the Lokvani facilities.
In an economy riddled with poverty, it is an enormous burden
on the citizens to forego daily wages to obtain regular government
services. Therefore, with the Lokvani system, the citizens are the
key beneficiaries and the media is putting pressure on the
government to ensure the continuation of the system (Figure
B4.1.1).

Citizens

Kiosk

Kiosk

GEOGRAPHICAL SPREAD
There are forty-two uniformly distributed kiosk centres at the
block and tehsil level of Sitapur. Each black dot in that figure
represents the location of a Kiosk centre in Sitapur. More than
one Kiosk may be situated in the same place.

SERVICES OFFERED BY LOKVANI

Government
Figure B4.1.1: Operational Model of Lokvani

The Lokvani system has empowered the public by generating


awareness about citizens rights through a seamless flow of
information. It is an outstanding manifestation of the right to
information. The services offered by Lokvani encompass a wide

88

India Infrastructure Report 2007

range of government departments (Department of Public Grievances, District Administration, Development Department, and
Department of Land and Revenue). The services offered by Lokvani are (a) Grievance and Petitions, (b) land records, (c) tender
service, (d) employment services, (e) information related to government schemes, and (f ) information about government services.

LOKVANI GRIEVANCE AND PETITIONS SERVICE


This is the most popularly used service of the Lokvani system as of now. This service allows citizens to register and then track the
status of their petition via a local kiosk. The complaint is then transferred to designated officials, who can read but cannot modify
it. It has many unique features including one which enables the citizens to follow up on their complaint while on the move with the
help of a mobile phone.
Another salient feature is the colour coding of complaints to ensure a prompt and satisfactory reply. It begins with the
complaints being coded white which automatically transforms into yellow 4 days before the set deadline for the disposal of the
complaint. Lastly, in the event of the expiration of the deadline, they are coded red otherwise the complaints are coded green and
disposed of.
Various functionalities provided are Status of Complaint, Officerwise Summary of all Complaints, Summary of all Complaints,
Datewise Received Complaints, Centrewise Sent Complaints, Datewise Marked Complaints, Datewise Modified Complaints, and
Datewise Disposed Complaints.

LAND RECORD SYSTEM


Information about the type of land, list of villages and details regarding the allotment of land in villages are available online in the local
language. Individuals can view the land records for a nominal payment. In case the information regarding a particular land record is
not available online at the kiosk centre, the applicant gets to receive it within a stipulated period of five days by speed post.

TENDER SERVICES
Notices regarding the tenders and their terms and conditions are published under the Lokvani Tender Service. The forms are also
available for download. Interested contractors can send the completed tender forms through speed post to the concerned offices.
Results and comparative charts of all bids are displayed on Internet within 24 hours of allotment.

EMPLOYMENT SERVICES
The Lokvani system provides information on all vacancies in the district as well as downloadable application forms for job seekers.
Detailed information regarding the financial help provided by the government under various self-employment schemes is also available.

INFORMATION RELATING TO GOVERNMENT SCHEMES


The data of various schemes funded by the Central and State Governments through various Developments and Social Welfare
Departments is accessible via Lokvani. Application forms for social schemes like Old Age Pension Scheme, National Family Benefit
Scheme, Professional and Vocational Education, Loan
N
for the Physically Handicapped, Loan for the
SITAPUR
To Oyal
KHERI
Development of Small Scale/Handicraft/Cottage
(Uttar Pradesh)
industry are made available for download. Citizens can
To Maigalganj
Hargaon Nabinagar Tambaur
download these forms and submit them through
Neri Baragaon
Jharerkhapur
Laharpur
Mallanpur
traditional methods.
Mohali
Akbarpur
Parsendi

Pisawan
Qutbnagar

BAHRAICHI

Ramkot

Thanagaon

Khairabad

Biswan

Misriksh

HARDOI

Khanpur

Maharajganj

SITAPUR

Machhrehta
Kamalpur
Nairnisharanya
Ranigarh

National Highway
District Boundary
To Beniganj
River
State Highway
Road
Railway Track
District Headquarter
Taluk Headquarter
Town
Tourist Place
Map not to scale
Copyright 2006 Compare infobase Pvt. Ltd

Sidhauli
Bari

Mahmudabad

Bansura

Nilgaon
To Fatehpur

BARA BANKI

24
To Lucknow

LUCKNOW

Fig. B4.1.2 Lokvani Kiosks with Black Dots representing the Kiosk location

INFORMATION ABOUT DEVELOPMENT WORKS


Lokvani provides a list of developmental programmes
which are running under various departments like
Educational Department, Jal Nigam, Electricity
Department, Food and Civil Supply Department, Social
Welfare Department, Public Works Department, Revenue
Department, and other development departments. It also
provides information about the people who have received
employment under the National Food for Work Scheme
and allotees of homes under the Indira Awas Yojana.
Information on the development work under various
schemes like National Food for Work Scheme, Member

Rural Telecom

89

of Parliament Development Scheme, and Member of Legislative Assembly Development Scheme is also available online. Detailed information
about the food allocated to Kotedars and other agencies is also freely available.

SINGLE WINDOW SYSTEM


Lokvani Single window system deals with the filing of application for Birth, Death, Income, and Domicile Certificates at the kiosk
centers. These certificates are received after due completion of the verification process. The system has been introduced on a trial
run basis.

BENEFITS OF THE LOKVANI SYSTEM


Citizens can easily obtain pertinent information from the kiosks that are conveniently located in every block and even in a few villages.
Unlike the traditional method, people are not required to visit the district/tehsil headquarters and as a result save on precious time,
money, and effort.
Computerization of land records has precluded the dependence on the Lekhpal for furnishing the official documents. Citizens can
access information about various government schemes and their preconditions through kiosks. They can also obtain the list of persons
who are benefiting under various schemes. A complaint can be filed against the concerned officer in the case of any discrepancy. For
example, if a person benefiting from the Food for Work, Indira Awas Yojana, Mid Day Meal or Prime Minister Gram Sadak Yojana
does not fulfil the prescribed criteria specified by the government, anyone can file a complaint against him. Online tender services have
significantly reduced the preexisting monopoly of some influential contractors. Results and comparative charts of all bids are displayed
on Lokvani within 24 hours of the allotment. This has drastically reduced the likelihood of illegal negotiations after the allocation of
a tender.
Before the implementation of Lokvani, there existed no easy method of checking the time taken by an officer to resolve cases assigned to
him, thus promoting a culture of lackadaisical approach and dereliction in solving problems. However, in the new system, the officer is
assigned a reasonable time period within which he has to redress the issue. This strict schedule has dramatically increased the efficiency
and accountability of officers. Moreover, the District Magistrate and the citizens can access the progress report of the work by any
officer. Transparency brought about by the easy availability of information on land records has reduced the possibility of land scams.
Kiosk operators are earning extra money besides their regular income, without any extra investment. This has caused the number
of registrations to climb up drastically. Apart from this their earnings from their mainstream business has also gone up.
Recently, Court Information System has been added to the portal. There is a plan to include:
Online Electoral Rolls,
Vehicle Registration, Driving Licence,
Payment of electricity bills, phone bills,
Ration cards and allotment to Kotedar,
Police thana computerization/networking connectivity,
Tourist Related information,
Daily rates of Fruits/Vegetables/Grains,
Online pensioners information/Installation of IVRSSMS,
Parivar register Database (Rural and Urban),
All Employees Database,
University/College information (seat availability, admission),
Health information (All Hospitals/Nursing Homes/Laboratories),
Recovery Certificates (R.Cs),
Industries information (Durry exporters and so on),
Registry of properties,
Banking Services,
Drinking Water facilities Database,
Development from MP/MLA funds,
Khasra and Jamabandi records, and
SC/ST tracker to Lokvani services.
In short, with the deployment of Information and Communication Technology, the task of managing the services becomes effortless.
Prior to the Lokvani system the infrastructure was abysmally inadequate due to a very limited number of computer systems and nonexistential computer networks. Another factor contributing to the efficiencies in governance has been the ability of the administration
to effectively monitor the government officers.
Note: The views expressed here are those of the authors of the box.

90

India Infrastructure Report 2007


Box 4.1.2
Building Rural Market Infrastructure
Rajasekhar

ITCs e-Chaupal was designed to achieve convergence between enhancing shareholder value, social good, and stimulating sustainable
rural development based on community-centric and market driven principles. It addresses issues contextualized within the Indian
farming and village systems by bringing to bear specialized expertise and insights required for scalable solutions.
The geographical dispersion of farmers increases the complexity of their market linkages. Weakness in physical infrastructure, in
combination with weakness in institutional infrastructure, leads to multiplication of intermediaries in the value chain. One of the
objectives of e-Chaupal is to re-engineer physical and information chains in such a way that they become efficient, locally responsive,
and enhance overall value for all the participants.
E-Chaupal has de-linked information from transaction through real-time multicasting ability of ICTs, to offer the freedom of
choice to the farmer and to the rural consumer. It makes it possible to bundle information, knowledge, and transaction from independent
participants in a collaborative business model to deliver unique value to the farmer/consumer and businesses simultaneously. The
seamless workflow capability of ICT enables smooth coordination across borders of individual enterprisesall this, without exclusively
depending on traditional institutional infrastructure.
One of the advantages of e-Chaupal is virtual aggregation of demand for farm inputs or marketing of farm produce which gives the
power of scale to the smallest of farmers. Community based e-commerce modelswhether within a contiguous cluster of villages or
across geographic dispersiongive the much needed volume linked economies to business enterprises and overcome the lack of
physical infrastructure and in the process create viable markets for the poor.
The e-Chaupal is in the process of expanding into a universal business platform and goes beyond basic information provisioning
to orchestrating knowledge extension services (farm management, risk management), availability of farm inputs and consumption
goods/services (screened for quality, price, local pick-up), and choice of output channel (market access assurance, convenience, lower
transaction costs) at the villagers doorstep through interlocking partnerships of specialized agencies.
In six years, more than 6200 e-Chaupals and 10 Chaupal Sagars were created by ITC across eight states reaching out to 35 lakh
farmers engaged in nine agri-commodities in 35,000 villages with a vision to reach 100,000 villages by 2010 while delivering extraordinary
value to all the stakeholders.
Note: Views expressed here are of the author of the box.

The cost of providing connectivity is, however, high and


the scheme can be cost effective only when other services are
combined with the agricultural products business of ITC.
However, it is evident from this pilot project that there is an
enormous demand for value added information although cost
effectiveness of the provisioning arrangement in view of its
limited usage is a concern.

month varies between Rs 3000 to 5000, indicative of the


quantum of demand of these services in rural areas. The cost
of product provisioning is not very high but can be made more
attractive through further expansion and certain regulatory
interventions. Availability of power is a major concern in all
such projects. There are various evaluations of these projects.
About 5060 per cent kiosks do well.

N-Logue projects in Tamil Nadu


and Andhra Pradesh

Andhra Pradesh Broadband Network

The project is based on the corDECT product developed by


IIT Madras. It provides information kiosks, in over 2000
villages in the state of Tamil Nadu and to a lesser extent in
Andhra Pradesh and Madhya Pradesh. The kiosk is connected
to the terminal of an ISP through a 70 kbps wireless connection
using corDECT technology which in turn provides internet
based services including e-education, e-medicine, video
conferencing, cyber chatting as on-line products and computer
training, photography (still photography) as off-line products.
These kiosks are owned by villagers, part financed by N-Logue
and partly by the villager himself. The reported income per

This is the most comprehensive and integrated effort so far


in any of the states and aims at broadband connectivity across
AP at an affordable cost within a viable tariff structure. The
Network plans to provide ten Gbps up to each district H.Q.,
one Gbps up to each Mandal H.Q., and 100/50 Mbps up to
each village using fibre/wireless.
From the analysis of the pilot projects, it is evident that a
market exists in rural areas for not just voice telephony but
also a variety of other value added services including Internet
Protocol TV (IPTV) which can be provided through data
circuits. A number of additional value added services can be
designed and implemented by service providers, once these

Rural Telecom

91

Table 4.1.12
Capex/Opex of Broadband connectivity projects
A.P. model
Per village
For 75000
villages
Capital Cost
0.93 lakh
Operational cost
0.25 lakh
(Annual)
Delivered bandwidth 100 Mbps
at village level
Revenue

701 crore
188 crore

N-logue
Per village
For 75000
villages

Per village

For 75000 villages

0.5 lakh
0.25 lakh

1.2 lakh
0.53 lakh

900 crore
398 crore

375 crore
188 crore

E-chaupal

70 kbps

64 kbps

Income/ year from year 2nd


Kiosks:
Rs 20,000 to Rs 1 lakh/ year
Profitability Project HQ:
Rs 30 lakh/ year (To be shared
by project HQ/ company).

Breakeven happens after 4th5th year of


Operations
Revenue HQ:
14.1 Crore approx. (With 30% Projects in
their 1st year of operation and the rest in their
2nd year of operation)
Revenue Franchisee:
Total revenue = 1% of total transactions
Approximately 4.5 crore, assuming 450 crore
transactions made in one year. Approx.
Rs 14063 per year per Franchisee
Revenue Agent:
Approx. 1.25 crore, assuming 450 crore
transactions made in one year. Approx.
Rs 62500 per year per agent

Source: World Resource Institute and TRAI.

networks are converted into IP based converged or unified


networks. The cost effectiveness of some of these projects for
scaling up to a large number of villages or all the rural areas in
the country is, however, not entirely proven at this stage (Table
4.1.12). But these projects are being expanded at a very fast
pace. Success of these projects will depend on:
1. unified licensing or convergence framework,
2. USO Funds for infrastructure efforts on a technology
neutral basis,
3. assurance of government business to these networks.
The market will automatically choose the best mode of
delivery for different areas and locations depending on their
requirements.
The main reason for better performance of these projects
appears to be the greater stake of the entrepreneur in the
schemes, involvement of the NGO, facilitation of funds, and
training of the entrepreneur. The cost of implementing these
schemes is also not much and a major proportion of the costs
is recoverable in business once the network stabilizes,
particularly in high-density villages.
If voice telephony is added to such networks, they may
be more viable and it is suggested that the Unified Licence
Policy, when implemented across the country could unlock

this potential (Jain, 2006). It is quite possible that in spite of


the best efforts of the cellular/UASL operators, they may not
be able to increase the penetration of telecom services in very
backward areas from the telecommunication point of view.
In such situations, a bottom up approach by promoting small
operators in partnership with local population may help.
Keeping this aspect in mind, a concept of niche operators in
Short Distance Charging Areas (SDCAs) where tele-density
is less than 1 per cent may be considered for early approval
(TRAI, 2005a).
To sum up, (i) the rural market for communications is not
entirely based on voice telephony nor is voice telephony service
by itself remunerative enough due to high infrastructure cost,
(ii) there is a substantial demand for value added services
provided on data circuits but such data circuits by themselves
are not sufficiently remunerative to be scalable to all parts of
the country, (iii) innovative projects of a small entrepreneur
working as franchisee of a large service provider, have produced
interesting results. Such entrepreneurs, utilizing their own
infrastructure of a specific nature, are often more successful
than very large operators, and (iv) if these projects can give the
entire range of triple play services (including TV), facilitated
by IP networks, the demand in rural areas for such networks

92

India Infrastructure Report 2007

would be large, and they would be more viable than single


play networks.

RURAL BPOS
The BPO business has four main inputs: communications
systems, hardware, infrastructure, and people. The cost of
communications and hardware is not in the direct control of
the industry, but BPO operators can directly control costs
related to infrastructure and people. Simply put, the rural
BPO shifts the location of outsourced work from urban to
rural areas. Lason Inc. (a US based outsourcing firm), GramIT
(associated with Satyam), and Datamation (a Delhi-based
group), are three of the key players in the Indian rural BPO
scene. Their approaches to the business also frame the different
execution possibilities.
A variety of business models have been adopted by the
various players, including franchising (see Boxes 4.1.3 and
4.1.4 for more details).

Rural BPO Operators


Lason does not own the specific centres that do the processing,
but designates them as franchisees, providing the hardware
and training, and monitoring the quality of output. The local
owner provides the physical location. Lason estimates that
about 30 per cent of the revenues it earned in 2004 came
from smaller city and rural sites.
Datamation, on the other hand, owns and operates all
the BPO centres it runs. NGOs assist Datamation in hiring

and training the workforce for the BPOs. Their operation is


based on a not-for-profit philosophy. They also run HewlettPackards rural BPO initiative (begun in February 2000),
which is part of a bigger project called HP i-Community.
The Byrraju Foundation, which is associated with Satyam,
has launched GramIT, a rural BPO in village Jallikakinada (AP)
that employs 200 rural youth, drawn locally as well as from
surrounding villages, using the last mile connectivity provided
by Project Ashwini, which connects thirty-two village centres
with broadband wireless. The GramIT centres are set up as
cooperative societies, acting as franchisees of Byrraju foundation.

What Drives Rural BPOs


One of the central advantages for the BPO is that costs
associated with infrastructure and people are much lower in
rural areas than in urban areas. This allows firms to reduce up
to 90 per cent of their expenditures in providing the physical
location given cheaper land prices and construction costs. In
addition, one of the observations of rural BPO managers has
been that employee attrition is lower because jobs are taken
to where the people live.
In rural South India a substantially large pool of English
language literate youth exists making it easy for BPOs to establish
operations and hire workers, implying lower turnaround and
hence, lower rehiring and training costs. Another major driver
behind the rural BPO model is that it feeds the large demand
for low cost outsourcing solutions for services such as
digitization of hospital records (proposed by GramIT) and
legal documents (the work processed by Lason).

Box 4.1.3
New Wave of BPOs
Pradeep Nevatia, MD & CEO of Lason India passionately believes that rural BPO is the next wave in BPO because this model makes
tremendous business sense and has significant social connotations. In March 2005, Lason started operations in Kizhanur, a small
village in Thiruvallur District of Tamil Nadu where it processed documents for clients in the US.
Recently, they were approached by Jindal South West Foundations Corporate Social Responsibility (CSR) wing, which is a part of
the OP Jindal Group, to launch a BPO facility in Bellary District, Karnataka. This facility has generated numerous employment
opportunities and is helping to bridge the technology divide in the region. In future, the Jindal Group may outsource its business
processes to this BPO site. This joint venture is an indication of how even non-IT companies can be a part of the rural BPO revolution
and benefit from the same. According to Mr Nevatia, Village BPOs mean lesser attrition (because jobs are being taken to where the
masses live as opposed to making people migrate from rural to urban areas for employment), which implies lower employee training
costs. Therefore, there is better cost efficiency. He believes that village BPOs will help address domestic BPO needs, such as in the case
of e-governance, that requires huge digitization which is currently hindered by the absence of cost-effective solutions. Village BPOs
ensure rural empowerment and self-sufficiency, which translate into an improved economy in the long run.
However, initially, sponsor companies need to invest time and money in intensive training and put in place Poka Yoke processes.
(The phrase Poka-Yoke is explained on www.isixsigma.com as the first step in truly error-proofing a system.) Importantly, the concept
of village BPOs is in sync with the governments philosophy of providing employment opportunities in villages.
Source: The Hindu (September 12, 2005).

Rural Telecom

93

Box 4.1.4
GramIT, a Rural BPO: An initiative of the Byrraju Foundation
Sagarika Bose
Byrraju Foundation is a non-profit organization set up in July 2001 in the memory of the Late Byrraju Satyanarayana
Raju, Founder, Satyam group of companies. The Foundation seeks to build progressive self-reliant rural communities by
providing services in the areas of healthcare, environment, sanitation, primary education, adult literacy, and skills development.
The Foundation currently works in 150 villages in 5 districts of Andhra PradeshEast Godavari, West Godavari, Krishna, Guntur,
and Ranga Reddy.
With the objective of moving rural India from the periphery to the centre of the new economy, the Foundation launched GramIT
as an initiative that seeks to engage educated rural youth in the new economy by providing BPO services from the village. The first
centre was launched at Jelli Kakinada, about 25 km from Bheemvaram in West Godavari district in August 2005, employing 200
youth from the village who would have otherwise moved to cities in search of job opportunities. The BPO centre does not belong to
a national or multinational corporation but is owned, managed, and led by the community.
The GramIT centres follow a BOOF (Build, Own, Operate and Franchise) model. The centre at Bheemavaram will be operated
by the Foundation until it attains financial stability (say over six months). The associates of the GramIT centre will then be
organized into a Mutually Aided Cooperative Society and the Centre will be franchised out to them. The workforce will have
ownership of the centre and be driven by entrepreneurial motivation for greater efficiency and thereby, profit generation. They will
assume full responsibility for operations and adherence to delivery schedules. Quality, Processes, Training, Customer Interface, and
Business development and Brand will continue to be owned and managed by the Foundation which will ensure that a uniform high
quality customer experience is built and maintained. The BOOF model, thus, effectively de-risks all stakeholdersthe employees,
the investors, and the customers.
GramIT Centre is envisioned as village level productive enterprise (VLPE) that will serve more than one purpose. As each GramIT
center will be an independent enterprise that caters to predefined and exacting service standards, it will foster the spirit of enterprise in
the village. Not only will they employ villagers, they will also empower villages, by contributing a part of the profits to chalk out and
implement strategies for village development, to either supplement governmental programmes or as independent initiatives. They will
also give voice to the increasing demand for quality infrastructure and services such as better roads, retailing, education and health in
the village. The GramIT being a profit-oriented enterprise will plough back a part of its surplus into the village for providing support
in implementing initiatives in health, education, water, sanitation and so on. The innovation is thus an amalgamation of a social cause
and a business case.
Selection for training is based on a simple aptitude cum skill test. This is followed by personal interview. The selected candidates
undergo intensive training for 810 weeks in the village by trainers who are experienced professionals. Post selection, training is
rigorous, focussing on honing English language skills, computer and keyboard skills and other soft skills making them fit to be
deployable in the ITeS industry. No salary or stipend is paid during the training period.
On completion of the training, the youth are engaged in transaction processing at the GramIT centres that provide back office
support to Indian companies, Indian Government bodies and other institutions, offering transaction processing in a variety of areas
such as, accounting, HR, bulk mailing, records digitization and archival services, reminder and follow up services, logistics and travel
support. As the first customer, Satyam Computer has outsourced some of its internal processes in human resources, bookkeeping and
administration. Several other leading corporates and institutions have also offered to support the initiative. The aim is to reach another
250 villages and 2 million people in the future.
GramIT has already seen a number of reverse migrations. Currently over 5 per cent of GramIT associates have migrated back from
the cities and this number will grow further. Several educated housewives accounting for nearly 20 per cent of the GramIT workforce,
have come to work either for the first time or are returning to work. Unmarried girls, comprising 20 per cent of GramIT associates are
seeking employment and earning an income which can be expected to have a positive impact on gender discrimination issues in the
villages. Significantly, the youth, who would perhaps be under employed for another five years while they search for Government
employment, pursue higher education or settle down in a vocation that does not use their education, are now economically useful
contributors to the village economy.
Apprehensions about poor connectivity, lack of trained manpower, inadequate orientation towards organized sector working are
disappearing. There are positive indicators from the users about the economic potential of GramIT centres, affirming the Foundations
belief in the potential of GramIT as a catalyst of rural transformation.
Note: Views expressed here are of the author of the box.

94

India Infrastructure Report 2007

AGENDA FOR ACTION

Power Supply

USO and TRAI Act

Unavailability of reliable power supply in semi-urban, rural and


remote areas increases operational costs because operators have
to maintain sufficient backup systems. Alternate energy sources
could mitigate this problem, but might be costly to install
and maintain. Hence, availability of a reliable power supply
is necessary for achieving higher tele-density in rural areas.

The TRAI Act has laid down clearly that notwithstanding the
tenets of the Indian Telegraph Act, 1885 (13 of 1885), the
Authority would ensure effective compliance of USO. Despite
this clear provision in the Act, the Regulator has not played a
significant role in the enforcement of universal service
obligations. The regulator has, however, held periodic review
meetings with the USOF and made recommendations on
the structure of the USO schemes. In October 2005, it made
detailed recommendations on rural telephony and the
government has taken decision on these far reaching
recommendations in November 2006. Also, as stated above,
the fund has been created by the governmentit is a part of
the Consolidated Fund and disbursements are sanctioned by
the Ministry of Finance. USO Fund Administrator who
presently prepares schemes and disburses funds, has also been
created at the governmental level. It is, thus, very clear that the
government presently controls rural telephony, and the regulator
plays no substantial role in enforcing its recommendations.
There is a need for an organizational restructuring for
the USOF.

Last Mile Connectivity


Since many remote regions of India have little or no telecom
infrastructure, it might be possible for local service providers
(like niche operators suggested in TRAI (2005a)) to provide
telecom connectivity by drawing backbone support either
from satellite systems or fibre, or even combinations of last
mile technologies and high capacity backbones (for example,
fibre backbone, WiMax backhaul, Wi-Fi local distribution).
Local operators will spur entrepreneurship and allow local
knowledge to dictate the design of networks. For example,
the FCC in the US has been very supportive of wireless
LAN technologies like Wi-Fi, especially in underserved
communities like the Appalachian region, the Mississippi
Delta, and American Native Villages (which tend to be remote
and difficult to access). The FCC has also sought the help of
local leaders and has pursued aggressive outreach programmes
in these areas (FCC 2004).
Last mile connectivity to sparsely distributed households
is costlier than in densely populated areas. Wireless technologies
offer a promising alternative for the provision of multi-service
broadband and voice connectivity. Making spectrum available
for rural wireless deployments at reasonable costs either through
special low rates or through financial support from USO Fund
will help bring costs down and encourage innovation and
deployment of advanced wireless technologies, providing
support for last mile connectivity.

Operation and Maintenance Cost


Maintenance costs of the network in rural areas are higher as
compared to urban areas because of poor transportation,
difficulty in obtaining spare parts, non-availability of skilled
manpower and so on. Operational cost of satellite technologies
such as VSAT in rural areas is also higher given the additional
cost of the bandwidth incurred by the operator and taxes.
Unless the number of rural subscribers grows this problem
cannot be easily tackled. The present arrangement of one or two
telephones in rural areas is obviously not a viable arrangement.

Duties, Levies, and Taxes


Prevailing duties, levies, and taxes are very high. The net result
is that the service cost becomes high and unattractive to rural
population and enough resources are not left with the operator
for major rollout. Instead of levying huge duties and then
reimbursing them with the help of USO, a far superior
arrangement would be to drastically reduce taxes and duties
on identifiable rural inputs.

Licensing Framework
We have seen that technological developments, especially those
built around IP networks have resulted in convergent networks
in which one single network offers a variety of services. As has
been pointed out in the TRAI recommendations on Unified
Licensing, service specific licensing is losing its meaning owing
to the fact that service providers of one type step into the services
of another type of licence using the same network. The increasing
capability of wireless technology and its use in the modern cellular
mobile technologies, irrespective of whether they are based on
the so called 3G technologies or beyond 3G technologies, has
created a totally new situation. It is, therefore, anticipated that
for the rural areas, where the demand is clearly identified to be
substantially inclined towards multimedia, a change in the
licensing or legal framework will be extremely useful.

Cost of Handsets and Access Devices


Lower income rural households may perceive mobile handsets
or access devices as expensive. The cost of handsets constitutes

Rural Telecom
an entry cost and is, therefore, an important barrier for growth
of mobile services. Recently, single chip cell phone solution
was launched in India that will bring down the cost of handsets,
making the Rs 1000 mobile a reality. Such single chip solutions
are expected to reduce power consumption by 50 per cent.
This has been possible due to the huge increase in the size of
the market, particularly of low priced handsets and a realization
among suppliers that India is a highly price-sensitive market
and its huge numbers can only be brought into the network
if the entry costs are low.

Availability of Locally Relevant Applications


It is also important to increase content accessthat is,
create applications and services which are useful to the local
population. These could include e-governance, e-health,
e-education, and commercial applications in local languages.
With proper communication infrastructure it may be possible
to move business processes to rural regions. This should open
up the growth potential of rural Indian economy.
The creation of necessary infrastructure will bring the
market forces into play to create the needed applications at
an acceptable cost. However, such a process is often slow and
will vary from area to area and will depend upon the state of
economic development of the given area as also the extent
of awareness generated about ICT in these areas. Thus, a
government policy and regulatory support would have to be
in the form of the initial seed application and towards this,
e-governance and e-health would play a major role.

Affordability of Services
There is evidence to suggest that people will spend up to 2
per cent of their income on phone calls if a phone is available
to them, even in rural communities. The number of cable
TV homes in India is more than those with fixed line phones.
This indicates that even lower income population has a
demand for entertainment and information services. Cellular
service providers have already begun to introduce innovative
schemes in urban markets to increase affordability of services.
For example, operators like Reliance, Bharti, and Hutch
have introduced micro prepaid cards that accelerate growth
and increase operator margins. Similar schemes in rural
areas will only serve to increase their market share and
service penetration.

Competition
The urban telecom growth was driven by aggressive competition
among a large number of operators. The present rural telecom
policy is dependent on the public sector and government-

95

supported USO schemes on individual telephones, VPTs and


so on. The present rural telecom policy, thus, replicates the
overall telecom policy during the period 194898. Hence,
there is a remarkable similarity in the overall telecom growth
graph of 194898 and the present day rural telecom graph
19962006.

Dovetailing State and Central Efforts


One of the most impressive facts about telecommunications
in India is that the fibre optic cable runs through every block
in the country. Different providers like the railways, Power Grid,
oil companies, BSNL, and GAIL have extensive deployments
of fibre in many remote areas. One of the possible ways to
overcome the problem of remote area communication in India
is to employ this latent capacity in the national interest.
The present governmental efforts in e-governance have
led to captive government networks up to block level. We
need to see whether these networks can be converted into
commercial networks, say by handing over NIC (National
Informatics Centre) networks to BSNL or by giving NIC an
Internet Service Provider (ISP) licence, and then allowing
competition by encouraging private networks in these areas
and also by giving these networks government business. There
is no logic in setting up separate data networks for government
business or governance. The Andhra government is trying to
encourage a private fibre to village network and is helping its
viability by ensuring government e-governance business to
this network.
The only solution, therefore, lies in creating sharable
infrastructure in rural areas to enable many operators to enter
in a viable and competitive manner and create an environment
which has led to the urban telecom revolution in India.
Regulatory interventions for sharing fibre already laid by
the incumbent from public or USO funds, especially in rural
areas are required. From the backbone onwards wireless services
may be provided. Reducing levies is essential to drop cost to
customer and hence, increase in penetration in new markets
particularly rural areas with lesser purchasing power and low
density of population.

USO to Fund Infrastructure and not Just Services


A key consideration in evolving these policy and regulatory
interventions is that market forces must be allowed to ultimately
determine the conditions for rural area telecom services. An
appropriate form of subsidy in the short run would be necessary
to incentivize the creation of infrastructure. This subsidy would
have to be in the form where the emphasis shifts from the
present VPT and individual DEL-based subsidy to growth in
network using subsidy. Further, these steps would lower the

96

India Infrastructure Report 2007

input cost resulting in the expansion of the market and


enhancement of revenues to the government from taxes on
the output.
The proposed network infrastructure expansion approach
in rural areas will be simpler to implement and monitor. The
operators will have to operate their services in a more efficient
manner. This will also encourage development of local
entrepreneurship in rural areas and ultimately, this will lead
to growth of telecom services in rural areas (Box 4.1.5).
Access service providers, who provide telecom services in
rural areas, using any technology, should also be given incentives
depending upon rollout of infrastructure in rural areas. Due
to cost reduction in optic fibre technology and its capability
of providing very high bandwidth in last mile connectivity
the operator may use this technology in rural/remote areas.
It would encourage the rollout of network by using any
wireline or wireless technology with support from USOF for
shared media. Currently, the amount of support has been
quantified for usage of wireless technology depending upon
the number of BTSs. Other technologies may also be given
incentive of the order of around 50 per cent of the total
infrastructure costs.

Spectrum Management
In rural and remote areas with low requirement of spectrum,
services should not be taxed heavily. Thus, depending upon

the number of BTSs located in rural areas, the service


providers should be given a discount in Annual Licence Fee
and Spectrum Charges, which are charged in terms of
percentage of AGR. The discount on Annual Licence fee and
Spectrum Charges could be linked to the rolling out of
infrastructure in rural/remote areas. For instance if 5000
BTSs are installed in rural/remote areas, then say, 10 per cent
discount may be given in the Licence Fee and Spectrum
Charges payable by the operator and percentage of discount
may increase further with increasing BTSs.
One may argue that service providers who provide voice
and/or data services in rural areas using any other technology
including Wi-Fi, Cor-DECT, fibre, and so on should also get
subsidy from USOF, just like cellular/UASL operators.
According to TRAI, only those access service providers who
contribute towards USO should get support at this stage, that
is, service providers such as ISPs or franchisee shall not be
eligible to get support from USOF. However, there are others
who argue that by not allowing proliferation of small operators
(in contrast to the policy for cable operators), we may be slowing
the spread of services. Some of these operators are too small to
have the wherewithal to become a franchise of the service
operator. It is conceivable that a small operator, who starts the
initial business would like to sell it to more established
businesses later. In such cases, the operator should return the
quantum of USOF support, along with the interest to the
USOF. This model is relevant as the larger service providers

Box 4.1.5
A Possible Roadmap for Enhancing Rural Teledensity using USO Fund
The key features of the rural network are the access through largely wireless means and connectivity of these wireless base stations to
the main network. About 20,000 base stations are required to cover 80 to 90 per cent rural population. As the population distribution
is not uniform, the initial installations in relatively densely populated areas would provide mobile signals to around 75 per cent of rural
population across 2 lakh larger villages.
Table B4.1.5
Funds Required from USOF for Incentivizing Mobile Towers
Mobile Towers
Total geographical area of India (sq km)
Total covered rural area (sq km)
Average radius covered per site (km)
Area under one site (sq km)
Total sites required
Inter-site distance (km)
No. of sites considered
Incentive per site for 3 operators (lakh) = 36
Total incentive for 20000 sites (in crore) = 7200
Source: TRAI (2004 and 2005b).

Circular Cells

Hexagon Cells

3,287,263
2,761,300
7.5
177
15,634
15
15,000

3,287,263
2,761,300
7.5
177
18,917
15
20,000

Rural Telecom

97

The total cost of setting up these 20,000 BTSs can be estimated from the configuration of the BTS, the height of the tower, the size
of the power plant, the size and type of the backup power plant. The purpose will be served if the costs are estimated on the basis
of average configurationsa 40 metre tower with suitable power plant and other features. The cost of one such BTS (including
electronic equipment) based on estimates obtained from various operators, works out to around Rs 50 lakh. In case three operators
share the tower, the cost of tower plus operator electronic equipment (Rs 10 lakh for each operator) for three would be around Rs
70 lakh.
USO funds could be used to incentivize the roll out through partial subsidy without fully supporting it. This could be done
through a support to cover part of the capex as well as part of the recurring operating costs for a limited period of time.
Another important hurdle for the expansion of network in rural areas is the expensive and time consuming process of setting up
backhaul connectivity of these BTSs to the base stations controllers (BSCs) and the main telecommunication network. With the
existing 600,000 route-km of optic fibre cable network, each base station should, on an average, be within 15 km or so of optic fibre
reach. However, this fibre is largely with a single service provider, the incumbent. The Access Service Provider and Universal Access
Service Licenses (UASL) provide for the licensees to develop their own infrastructure for rolling out their networks. Thus, unless there
is substantial motivation and a win-win deal for all, mandating the provisioning of leased lines even in rural areas, could create
disputes. At the same time utilizing this infrastructure rather than waiting for a new one to be laid, has to be a national priority, subject
to adequate compensatory commercial terms being offered. TRAI in its Tariff Order dated 21 April 2005 on Domestic Leased Circuits
mentioned that it would consider making recommendations to the government on the issue of providing direct support from USO
fund to bandwidth providers in rural/remote areas. Quite evidently, the extent of such support would depend upon the price at which
bandwidth services are to be made available to the service providers in such areas within the ceiling tariff specified in the said Order.
Thus, if it is mandated that those who own optic fibre connectivity in a given rural/remote area, must provide leased lines, these
facility owners/service providers could be provided subsidy through the USO fund, possibly to the extent of covering 30 per cent
discount on specified ceiling. Assuming that fibre connectivity is already available to each new tower installation within 15 to 20 km
and the average distance between BTS and BSC is around 170 km, then an additional burden on USOF for 20,000 BTSs for 5 years
would be about Rs 1040 crore. This amount is based on the assumption that each BTS will be connected with its BSC with one E1
only through leased circuits. Even if it is assumed that a minimum of two E1s will be required to connect each BTS, this amount
works out to Rs 2080 crore over a period of five years. It is also quite likely that since lease line connectivity between BSC and BTSs
is in a point to multi-point configuration, because of usage of common optical fibre cable and other equipment, this burden on USOF
may be reduced. This is an indicative figure.
It can be seen that through a support from USOF of about Rs 9000 crore it will be possible to install 20,000 base stations in rural
areas with two E1 connectivity to the main network to cover about 80 to 90 per cent of the villages providing access to wireless signals
of appropriate bandwidth. Operators will be able to offer telecom services of the type required by rural population at price levels where
the cost-benefit ratio will clearly suit its large number of target customers.
There will be some balance amount (approximately Rs 9000 crore) in USOF even after meeting all the contractual commitments
for VPTs, RCPs, MARR replacements and rural DELs. Therefore, it would be possible to provide support for network infrastructure
expansion and it may not be necessary to increase the contribution from existing level of 5 per cent of AGR of the contributing
operators. After contractual commitments for the existing VPTs, RCPs, MARR replacements and rural DELs are completed, only the
network infrastructure expansion approach should be followed for providing USOF support. Since the amount of support in this
network expansion approach will be less and ultimately the growth of telecom services in rural areas will pick up, therefore, in future
the reduction in USO level from the existing level of 5 per cent of AGR may also be considered. However, since ADC Regime has to
come to an end in the year 2008 and it has to merge in USO Regime, the contribution towards USO may be suitably adjusted keeping
in mind the merger of ADC Regime and also the objectives of USO policy at that point of time. Judging by the past experience in the
urban areas and the response received in the pilot trials, a rural tele-density figure of about 15 per cent should be entirely feasible with
this proposed enabling approach of infrastructure creation, in the next few years.
The operator who installs BTSs in rural/remote areas should be given one time support (in two installments) of Rs 12 lakh per
BTS from USOF, provided the installed infrastructure is shared with at least one other operator. Given the number of operators,
three operators per rural tower would be the ideal solution. The other two operators who roll out their services in rural/remote
areas and share the infrastructure like tower/shelter and power supply with the already existing operator in that area will provide the
infrastructure. Ground based towers (as is common in rural areas) would receive support of such magnitude. In case roof-top/pole
mounted towers are used, the support and distance criteria can be suitably scaled down. This support should also be given for
existing BTSs, which start sharing and are installed beyond cities/towns and the service providers give the mobile connections in
their coverage areas. In order to avail the above mentioned support the two ground based towers installed in rural areas must be
empirically 15 km apart. However, looking at different terrains, the distance might vary and therefore, it may be prescribed that for
eligibility under the scheme, the minimum distance should be 12 km. It is also possible that the passive infrastructure like tower,
shelter and back up power supply may be installed by infrastructure provider. This infrastructure provider will have to settle their
commercial arrangement with these access providers.

98

India Infrastructure Report 2007

are going to take the top down approach to diffusion of rural


services as highlighted earlier.
At present, the necessary clearances (including SACFA
clearance) are required to be taken in advance for installing
the tower. Even if post facto approval is permitted for installing
towers, Wireless Planning and Co-ordination (WPC) wing
of DOT will have a centralized database of all towers installed
by operators. This may help in verifying the location of towers
and thus make the scheme simpler from the implementation
point of view.

There are several management challenges in the above


suggested plane. For example, does the USOF have adequate
staff and requisite support to roll out this plan? The roll out
envisages active coordination with private operators, seeking
collaborations and monitoring the rollouts. In this context,
a third party study that can identity the bottlenecks in the
existing USOF has not been planned. Since the existing USOF
plan and the proposed plans are highly visible programmes,
there should be an early review mechanism designed as a
part of the plan.

Rural Telecom

ANNEXE
Table A4.1.1
Computation of Committed Subsidy towards VPT, MARR, and RCP (Public Access Facility)
Particulars
1.

2.

3.

4.

5.

VPT Subsidy
Number of VPT (in lakhs)
OPEX subsidy per VPT per year average (in Rs)
Total VPT subsidy per year (in Rs Cr.)
Total VPT subsidy for 7 years (in Rs Cr.)
MARR replacement
Number of VPTs (in lakhs)
CAPEX per year Average (in Rs)
Total MARR susbsidy per year (in Rs Cr.)
Total MARR subsidy for 7 years (in Rs Cr.)
Uncovered Villages
Villages covered through satellite
Upfront per satellite (in lakh)
Total upfront cost-Capex (in Rs Cr.)
OPEX per year (in Rs) average
OPEX per year (in Rs Cr.)
OPEX per year for 5 year (in Rs Cr.)
Non-satellite Villages
Upfront per village
Total upfront cost (in Rs Cr.) one time
OPEX per year Average (in Rs)
OPEX per year (in Rs Cr.)
OPEX per year for 5 year (in Rs Cr.)
Total subsidy for uncovered villages
RCP
Total Number of RCP
Upfront per RCP (Average)
Total upfront cost (in Cr.)
OPEX per year Average (in Rs)
OPEX per year (in Cr.)
OPEX per year for 5 year (in Cr.)
HPTIC
Total no of HPTIC
Upfront per HPTIC (Rs in lakh)
Total upfront cost (in Rs Cr.)
OPEX per year per HPTIC (in Rs)
OPEX per year (in Rs Cr.)
OPEX per year for 5 year (in Rs Cr.)
Total commitments (Rs Cr.)

Source: TRAI.

3.2
5357
171.4
1200
1.86
11518
214
1500
14000
1
140
11739
16
82
46000
25000
115
4295
19.757
99
436
46253
23200
107
2000
9
46
2000
1.5
30
25000
5
25
3344

99

100

India Infrastructure Report 2007


Table A4.1.2
Total DEL Subsidy required to achieve additional 66 lakh rural DELs by 2007 (estimation by USOF)
DELs Subsidy
DEL (from 1/4/2005
DEL (from 1/4/2002
to 31/3/2010)
to 31/3/2005)
Additional Subscriber
Estimated
Estimated
subscriber
base as
Capex
Opex
during
on 31st Estimated
to be
(to be
Capex
Opex
the year
March
Capex disbursed Estimated disbursed Disburse- Disburse(in Rs
(in Rs
(in Rs
(in Rs Opex (in
(in Rs
ments in ments (in
Crore)
Crore)
Crore)
Crore) Rs Crore)
Crore) Rs Crore) Rs Crore)

Subscriber Base

S.
No.
1.
2.
3.
4.
5.
6.
7.

Year
1/4/20022005
2006
2007
2008
2009
2010
2011

Subscriber
base as
1st April
(in Rs
Crore)

0.15000

1.3456
1.6056
2.0056
2.0056
2.0056

0.2600
0.4000
0.00
0.00
0.00

1.6056
2.0056
2.0056
2.0056
2.0056

2,600
4000

1950
3650
1000

390
990
990
990
990

1500
0
0
0
0

225
225
225
225
225

Total

0.6600

6600

6600

4350

292.5
840
990
990
990
248
4350
10950
11000

1500

1125
2625
2600

Allowed disbursement

Approx

Total Disbursement required

Approx

Total
Amount
Disbursements (in
Rs Crore)

3967.50
4715.00
2215.00
1215.00
1215.00
247.50
13575

13575

Note: Total subsidy required for meeting present commitments (VPC, MARR, RCPs and DELs) = 3344 Rs crore + 13575 Rs crore (DELs)
= 17000 Rs crore.
Source: TRAI.
Table A4.1.3
Total DEL Subsidy required for achieving 4% rural tele-density by 2010
Subscriber base

S. No
1.
2.
3.
4.

Year
Ending
2006
2007
2008
2009
2010

Subscriber
Base
Opening
for Financial year
(in Rs
Crore)
1.3456
1.6056
2.0056
2.2462
2.5158
Total

Additional
subs- Subscriber
criber base at
during Closing
the year of Fin.
(in Rs Year (in
Crore) Rs Crore)
0.2600 1.6056
0.4000 2.0056
0.2407 2.2462
0.2695 2.5158
0.3019 2.8177
1.4721

DEL (from 1/4/2005 to


31/3/2005)

Capex
Capex Disbursed
due (in
(in Rs
Rs Crore) Crore)
2600.00 2600.00
4000.00 4000.00
2406.68 1805.01
2695.48 2021.61
3018.94 2264.21
14721
12691

Opex
Disbursement
(in Rs
Crores)
390.00
990.00
1351.00
1755.32
2208.17
6694

DEL (From
1/4/2002
to 31/3/2010)

Capex
Disbursements
(in Rs
Crore)
1500

1500

ADC for
lines not
covered
Opex
Total
by the
Disbur- Disbur- USO
sements sements Fund
(in Rs
(in Rs (EstimTotal
Crore)
Crore) ation)
USO
225
4715
0
4715
225
5215
0
5212
225
3381
0
3381
225
4002
2774
6776
225
4697
2329
7026
1125
22010
5103
27113

Note: It is assumed that ADC regime gets concluded in the year 2008. ADC calculated for 11.96 Rs crore Rural DELs not covered in USO
Total subsidy required for meeting present commitments (VPT, MARR, RCPs & DELs) = 3344 + 22010 Rs crore (DELs) = 5103 Rs crore
ADC for rural lines not covered by USO = 30457 Rs crore.
Source: TRAI.

Rural Telecom

101

REFERENCES
FCC (2001). (Federal Communication Commission), Federal-State
Joint Board On Universal Service Petition of The State of Alaska
for Waiver for the Utilization of Schools and Libraries Internet
Point-of-Presence in Rural Remote, December 2001.
FCC (2004). Consumer & Governmental Affairs Bureau Reports on
Status of Lands of Opportunity: Building Rural Connectivity,
July 8, 2004, available at http://hraunfoss.fcc.gov/edocs_public/
attachmatch/DOC-249411A1.pdf
Jain, Rekha (2001). A Review of the Indian Telecom Sector India
Infrastructure Report 2001: Issues in Regulation and Market Structure, New Delhi: Oxford University Press.
(2004). State-wide Area Network, India Infrastructure Report
2004: Ensuring Value for Money, New Delhi: Oxford University
Press.
(2006). Report on Accelerated Provision of telecom Services,
Working Paper, Indian Institute of Management, Ahmedabad.
Morgan Stanley (2005). Micro-Prepaid comes to India, Telecommunications Industry Overview, Morgan Stanley India, Mumbai.

NCAER (2002). India Market Demographics Report 2002, New


Delhi.
The Hindu (2005). Abstract from a story that appeared on Sep 12.
TRAI (2004). Growth of Telecom Services in Rural India,
Consultation Paper, Telecom Regulatory Authority of India,
New Delhi.
(2005a). Recommendations on Unified Licensing Regime,
Telecom Regulatory Authority of India, January, New Delhi.
(2005b). Recommendations on the Growth of Telecom Services
in Rural India, Telecom Regulatory Authority of India, New Delhi.
TRAI (2006). Press Release No. 66/2006, Telecom Services Maintain
Its Growth in June 2006, Telecom Regulatory Authority of India,
New Delhi.
(2006a). Allocation and Pricing of Spectrum for 3G Services
and Broadband Wireless Access, Consultation Paper No. 9/2006,
Telecom Regulatory Authority of India, New Delhi.
World Bank (2002). Telecommunication and Information Services
for the Poor, World Bank Discussion paper No. 432.

102

India Infrastructure Report 2007

PART II ACCELERATING RURAL TELECOM PENETRATION:


A STATE LEVEL ANALYSIS4
Rekha Jain and G. Raghuram

INTRODUCTION
Regulatory and technological changes in the recent past have
resulted in tremendous growth in teledensity. Total teledensity
between 1998 and 2005 grew from 1.9 per cent to 9.08 per
cent. Urban teledensity (UTD) increased from about 6 per
cent to 26 per cent, but rural teledensity (RTD) increased from
0.4 per cent to about 2 per cent only in the same period. Here
we suggest a framework for targetting of policy options,
understanding of the nature of demand and perceived benefits
of rural telecom services for prioritizing rollout and structuring
of the Universal Service Obligations Fund. This research seeks
to identify attributes that should determine policies related
to rural telecom across and within states.
We examined trends in RTD growth at the state level and
related them to the state level development parameters such
as (i) fixed line UTD, (ii) literacy rates, (iii) rural literacy
rates, (iv) rural income per capita, and (v) percentage of rural
population. We also examined consumption patterns across
states to understand the nature of rural demand in relation
to telecom services and supply side policies such as lower
rentals that are likely to drive growth trends with its possible
implications of rural demand.

FIXED LINE TELECOM DENSITY IN STATES


States were categorized on the basis of RTD, to examine if
there were common characteristics that contributed to their
classification in a particular group and understand the
relationships among the development parameters and their
possible influence on RTD. Over five years of the study, all
the states witnessed improvements in rural telecom density
at varying rates, resulting in the national average teledensity
rising from 0.65 per cent to 1.58 per cent. The CAGR
(excluding states where appropriate data was not available)
nationally was 19.44 per cent during 2000 to 2004.
There were large variations in RTD across different states
during 2000 to 2004 (Table 4.2.1). Kerala, Andaman and
Nicobar (A&N), and Himachal Pradesh (HP) had the top
three RTDs of 8.45 per cent, 8.36 per cent, and 5.50 per
4This

is an abridged version of the report to the Department of


Telecom (DOT) (sponsored by World Bank) on policy and regulatory
options for Accelerated Rural Telecom Services submitted in April 2005.

cent respectively while Jharkhand, Chhattisgarh, and Uttar


Pradesh (UP) had the lowest RTDs at 0.46 per cent, 0.47
per cent and 0.48 per cent respectively. There were certain
discrepancies in the data as highlighted in notes to the
Table 4.2.1.
A review of the RTDs facilitated state groupings as presented
in Figure 4.2.1. There exist four natural categories. These are
states having high (over 4 per cent), medium (those having
from 2 per cent to 4 per cent), low (those having more than
0.9 per cent to 2 per cent) and poor RTD (below 0.9 per cent).
We examine the RTDs with respect to the following
developmental parameters: (i) fixed line UTD, (ii) literacy
rates, (iii) rural literacy rates, (iv) rural income per capita,
and (v) percentage of rural population, category wise in
Table A4.2.1.

Category 1: High RTD States


Kerala, A & N, HP, and Punjab fall in this category. The UTD
in this category was 73.0 per cent above the national average.
HP had a UTD which was 241.5 per cent above national
average and Punjab had the lowest UTD, but even this was
45.8 per cent above average. The literacy rate was 25.3 per
cent above average. While Kerala had the highest literacy rate
of 40.3 per cent above average, the same for Punjab was 7.6
per cent above average. The rural literacy rate in these states
was 66.4 per cent above average, showing higher correlation
of rural literacy rates with RTD than with overall literacy
rates. Kerala had the highest rural literacy rate at 107.8 per
cent above average, while Punjab, which ranked the lowest,
had a rural literacy rate of 19 per cent above average. Rural per
capita income was 30.2 per cent above average for these states,
showing a correlation between higher RTD and rural per capita
income. Punjab had 68.1 per cent above average, while HP
and Kerala were 9.9 per cent and 5.1 per cent above average
only. The relationship between RTD and SDP/capita showed
SDP/capita 20.9 per cent above average for this groupthe
difference between Punjab, HP and Kerala was not pronounced
for this parameter being at 16.9 per cent, 12.6 per cent and
12.1 per cent above average respectively. The percentage of
rural population was 0.3 per cent above the national average.
While HP had a rural population 24.9 per cent above average,
Punjab had 8.5 per cent below average rural population.

Rural Telecom

103

Table 4.2.1
State-wise Fixed Line RTD with CAGR
Sr.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

States/UTs

2000

2001

Kerala
A&N Islands
HP
Punjab
Gujarat
Haryana
Karnataka
Andhra Pradesh
Maharashtra
Tamil Nadu
Uttaranchal
Rajasthan
North East
West Bengal
Orissa
Madhya Pradesh
Jammu & Kashmir
Assam
Bihar
UP
Chhattisgarh
Jharkhand
India

3.84
4.63
2.95
1.88
1.07
0.93
1.26
0.96
0.95
0.51
NA
0.59
0.81
0.34
0.35
0.51
0.10
0.20
0.17
0.21
NA
NA
0.65

5.05
6.18
3.76
2.70
1.48
1.40
1.79
1.47
1.33
0.49
2.09
0.81
0.56
0.51
0.49
0.41
0.13
0.25
0.22
0.25
0.20
0.20
0.90

RTD as on 31st March (%)


2002
2003
6.59
6.97
5.05
4.10
2.09
2.00
2.13
1.83
1.87
0.46
1.13
1.15
0.79
0.75
0.72
0.50
0.23
0.39
0.38
0.40
0.28
0.30
1.22

7.75
7.72
5.42
4.55
2.48
2.33
2.35
2.02
2.15
2.01
1.29
1.27
0.89
0.89
0.87
0.57
0.53
0.50
0.49
0.57
0.40
0.41
1.49

2004

CAGR (%)

8.45
8.36
5.50
4.74
2.53
2.43
2.38
2.31
2.29
2.17
1.47
1.36
1.08
0.95
0.94
0.69
0.63
0.56
0.51
0.48
0.47
0.46
1.58

17.09
12.54
13.27
20.32
18.78
21.18
13.56
19.20
19.24
33.59
NA
18.18
NA
22.81
21.85
6.23
44.50
22.87
24.57
NA
NA
NA
19.44

Source: BSNL Internal Documents.


Notes:
a) NA: not available.
b) Highlighted areas indicate discrepancies of reducing teledensity.
We had sought clarification from BSNL. These are provided below:
1. In respect of Bihar and Madhya Pradesh, formation of Jharkhand and Chhattisgarh states in 2001 has contributed for the distortions.
2. The correct population figures for the year 2000 for North East are not available. The telephone connections have shown ~25 per cent
growth in absolute terms. The tele-density figures may perhaps be revised backwards.
3. In Tamil Nadu there was re-organization of rural/urban areas.
4. The discrepancies for UP and Uttaranchal could not be explained.
5. No explanation for Gujarat was provided and the figures were stated to be correct.

Category 2: States with Medium RTD


Gujarat, Haryana, Karnataka, Maharashtra, and AP fall in
this category. The UTD in these states was 8.6 per cent above
average while Haryana had a UTD which was 35.3 per cent
above average, TN had a UTD that was just 0.18 per cent
above average. The literacy rates of the category was 7.6 per
cent above average, Maharashtra had the highest literacy rate
which was 18.7 per cent above average, whereas AP had the
lowest literacy rate of 6.6 per cent below average. The rural
literacy rate of the category was 10.7 per cent above average,
showing higher correlation of rural literacy rates with RTD than
with over all literacy rates as was the case with category 1 states.
TN had the highest rural literacy rate while AP had the lowest,

which was 19.8 per cent below average. The rural income
per capita was 25.1 per cent above average for this category,
which for Haryana is 50.9 per cent above average and Gujarat
a close second at 48.1 per cent above average. For AP rural
per capita income is lowest for the category at 12.1 per cent
above average. The relationship between RTD and SDP/
capita was stronger than category 1. Maharashtra had the
highest SDP/capita at 38.8 per cent above average. Haryana,
Gujarat, and TN are 35.3 per cent, 29.3 per cent, and 25.9
per cent above average respectively, while AP is 2.6 per cent
below average value. The percentage of rural population was
12.3 per cent below the national average for the group. TN,
Maharashtra and Gujarat are 22.3 per cent, 20.2 per cent

104

India Infrastructure Report 2007

9.00

KRL
A&N

8.00

RTD (%)

7.00
6.00

HP

5.00

PB

4.00
3.00

GJ

HR

KTK AP
MH TN

2.00

India

1.00

UCL RJ

NE WB OR

MP J&K AS BH CGH
JKD

0.00
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

States
A&NAndaman and Nicobar

APAndhra Pradesh

ASAssam

BHBihar

CGHChhattisgarh

GJGujarat

HPHimachal Pradesh
J&KJammu & Kashmir

HRHaryana
KRLKerala

JKDJharkhand
KTKKarnataka

MHMaharashtra
OROrissa

MPMadhya Pradesh
PBPunjab

NENorth East
RJRajasthan

Fig. 4.2.1 States by Rural Tele-density (2004)

below average substantially lower than category 3 states. While


Assam had a UTD which was 3.8 per cent above average,
Chattisgarh had a value 42.47 per cent below average. MP,
Jharkhand and Bihar also had very low values at 37.4 per
cent, 30.9 per cent and 28.5 per cent below average. The
literacy rates for this category were 13.3 per cent below
average, with Bihar having the lowest value in this category
at 27.5 per cent below average. In terms of the rural literacy
rate, the category average was 21.2 per cent below average.
Bihar had the lowest rural literacy rates at 27.8 per cent
below average. The rural income per capita was 26.8 per
cent below average for this category, with UP at 31.5
per cent below average and Assam 12.9 per cent above average.
The SDP/capita in this category was 47 per cent below
average. MP had the highest SDP/capita in the category, but
that was 29.3 per cent below average. Bihar had the lowest
SDP/capita, at 69 per cent below average. The rural
population was 12 per cent above the national average. MP
had the lowest percentage of rural population (1.5 per cent
above average) and Bihar had the highest percentage (24 per
cent above average).

and 13.3 per cent below the national average in terms of


percentage of rural population.

Quantitative Analysis of Effect of Development


Parameters on RTD

Category 3: States with Low RTD

Further analysis was done using simple and multiple regressions


to quantify the effects of the various causal development
parameters on RTD.6
In the single variable model, UTD was the most significant
driver of RTD, followed by rural literacy. The multiple
regression models showed that rural per capita income and
the UTD were more significant. It was possible that rural
literacy was related to rural per capita income which in turn
could be a determinant of RTD. It also appears that some of
the variables, after a threshold value would have multiplier
effect on the growth of telecom services. This model could
help in sequencing roll outs by relating the influence of rural
literacy, UTD, or rural per capita income on RTD.

Uttaranchal, Rajasthan, NE, WB, and Orissa comprise this


category5. The UTD of this category was 10.6 per cent below
average. The literacy rates for this category were 0.8 per cent
above average, with Rajasthan having the lowest value in this
category at 6.8 per cent below average. The rural literacy rate
of the category was 4.8 per cent below average. Rajasthan
had the lowest rural literacy rates at 34.9 per cent below average.
The rural income per capita was 11 per cent below average,
with Orissa at 42 per cent below average and Rajasthan, 8.6
per cent above average. The SDP/capita in this category was
19.7 per cent below average. WB had the highest SDP/capita,
but that was 7.8 per cent below average. Orissa had the lowest
SDP/capita, at 44 per cent below average. The percentage of
rural population was 5.7 per cent above the national average.
WB had the lowest percentage of rural population (0.3 per
cent below average) and Orissa had the highest percentage
(17.7 per cent above average).

Category 4: States with Poor RTD


MP, J&K, Assam, Bihar, UP, Chhattisgarh, and Jharkhand fall
in this category. The UTD of these states was 26.1 per cent
5Some

of the data was not available for category 3 and 4 states.

LINKING CONSUMPTION PATTERNS


TO TARGET POLICIES
The fact that the number of mobile subscribers worldwide
was far greater than fixed line subscribers, despite the higher
call rates, seems to indicate that customers are willing to pay
for service they value. In India too, though mobile growth
has been fuelled by urban subscribers, increasingly, demand
for handsets and services in rural areas indicates a willingness
to pay.
6The

details are available on request from the authors.

Rural Telecom
A study by A.C. Nielsen indicated that about 9 million
families belonged to the more affluent class R1+R2+R3A7
and comprised nearly 22 per cent of the rural families.8 Also,
that the basket of items of consumption for urban and rural
users was similar for certain categories of rural users. The
increase in spending on telecom services in urban areas could
also be expected to replicate in affluent rural categories. A
state level analysis of top 20 per cent of the rural population
ranked according to the level of consumption helped us to
estimate the state level demand.
The middle class in rural areas comprising 112.8 million
people has an annual consumption of Rs 10,309 per capita
compared to 128.3 million in urban areas with an annual per
capita consumption of Rs 14,513 (Sen, 2004). The consumption
patterns of the top20 (representing the top 20 per cent of the
population by consumption) at the state level are quite diverse
and their annual per capita consumption expenditure shows
wide variations (Table 4.2.2).
The rural top20 having an above national average consumption comprises nearly 50 million people across different states. (For UP, the average consumption level for top 20
was slightly lower than the national average of Rs 10,309.
We took one third of this category as the relevant category.
This comprised nearly 7.6 million people.) Relating this distribution to the RTD categorization we find that even in
states that had lower RTD and per capita income, there were
segments where telecom services could become commercially
viable. If low RTD was associated with specific pockets within
states that displayed higher consumption levels, then, it may
be an indicator of lack of supply rather than that of demand.
However, a supply driven approach would need to be adopted
for the large number of rural areas that had poor telecom
services and low ability to pay.

PRICE REGULATION AND ITS EFFECT ON DEMAND


Registration charges, rentals, and cost per call have been
identified both by the government and independent studies
as important determinants of rural peoples acquisition and
usage of a telephone (Rao and Kumar, 2000). A policy initiative
of keeping registration fee for rural areas lower than in urban
areas has been taken. The governments policy has been adopted
by TRAI, so that while it has foreborne on regulating both
cellular and fixed service tariffs in urban areas, it also regulates
7The

Rural Sector is divided into SEC R1, R2, R3, R4 (calculated


as a function of Educational Qualifications of the Chief Wage Earner
and the type of the household he/she stays inPucca, Semi Pucca or
Kaccha). Someone with a professional degree living in a pucca house
will come in R1 category and an illiterate living in a kutcha house will
be classified as R4 (SourceFICCI Press Release September 9, 2005).
8Business Today January 30, 2005.

105

Table 4.2.2
The Indian Middle Class: Where does it Live?
Average
Monthly per
Capita
Consumption
Expenditure
(Rs)

Number
of
Persons
(millions)

Annual per
Capita
Consumption
Expenditure
(Rs)

Kerala rural top20

1,448

3.9

17,376

Punjab rural top20

1,295

2.7

15,540

Haryana rural top20

1,218

2.5

14,616

TN rural top20

950

5.8

11,400

Gujarat rural top20

948

5.3

11,376

Maharashtra rural top20

893

9.3

10,716

Rajasthan rural top20

884

7.2

10,608

Karnataka rural top20

864

5.8

10,368

UP rural top20

815

23.0

9780

AP rural top20

789

9.2

9468

WB rural top20

757

9.6

9084

Punjab rural mid40

712

5.4

8544

Kerala rural mid40

711

7.9

8532

Haryana rural mid40

693

5.0

8316

MP rural top20

684

10.2

8208

States

Source: The Hindu Business Line, Saturday, January 22, 2005.

rural tariffs. The registration fees had been lowered from Rs


3000 to Rs 1000 in 2000 and further to Rs 500 in 2004.
The rentals for rural areas were lower than those for urban
areas. These have also been reduced from the earlier Rs 709
in 1999 to Rs 50 in December 2004. This has boosted rural
demand as shown by the increasing rural DELs since 2000
(Figure 4.2.2). Although lowering the price boosted rural
demand, the competitive pressure from mobile telephony led
to reduction in incremental demand of DELs after 20001.
Moreover, the reduction in charges led to a wider viability
gap, making rural telecom unattractive for the BSNL.10
Another policy initiative was lowering local call charge
(in relation to such calls in urban areas) and the increasing
distance over which local call charges were applicable. This
substantially increased the differential between the costs of
travelling to a neighbouring village vis--vis a call, thus boosting
demand for telecom services (Rao and Kumar, 2000).
9The

rental depends on the category of exchange. Higher rentals


are linked to higher capacity exchanges. This is the lowest rental.
10BSNL captured the demand by rolling out mobile telephony
under the brand name One India since 20012.

Number of Rural DEL addition (in million)

106

India Infrastructure Report 2007

2.5
2
1.5
1

0.5
0
19967

19978

19989 19992000 20001

20012

20023

20034

Fig. 4.2.2 Rural DELs additions


Source: TRAI (2004).

IMPLICATIONS AND RECOMMENDATIONS


Even though the DoT had targets for increasing RTDs at the
national level, the outcomes were extremely uneven across
states. The analysis helped to disaggregate the state level RTD
by socio-economic attributes rather than based on geographic
(for example hill states or by regions (north, south, east, west)
or administrative considerations alone. For example, the
analysis shows that within hill states, HP falls within the high
RTD category, whereas all other states fall within the low or
poor category RTD states. The analysis shows that UTD, rural
literacy rate, and rural income per capita, were important
determinants of RTD. This has implications for future
deployments of USOF, in terms of prioritizing investments.
This implies that USOF, TRAI and DoT may want to focus
on specific states, rather than overall RTD targets. While on one
hand, the focus should continue to be on states that had achieved
higher than average RTD, as due to the network externalities,
smaller investments could lead to substantially higher demand,
a significant part of which could be commercially viable.

The states that were consistently (50 per cent or more)


below average such as Assam, Bihar, J&K, UP, MP,
Chhattisgarh, and Jharkhand require sustained development
focus if the disparities of RTD were to substantially decrease.
Even within low RTD states, areas with higher growth potential
driven by rural consumption should be targetted to ensure
greater commercial viability.
The USOF needs to take into account the factors that
drive demand in formulating its guidelines. For example,
adopting a cluster approach would require it to focus on
sequencing of roll out. The USOF examines both cost and
revenue data for support and to that extent incorporates the
demand profile. New technological options have the potential
to fundamentally change the demand profile and institutional
support for further work on such technologies is called for.
There was a requirement to explicitly focus on how the
government would provide the policy framework to enable
wireless broadband in the rural areas. While TRAI has requested
that rural broadband access be considered for Universal Service
Obligation (USO), the Broadband Policy 2004 does not make
specific mention of this.
Another important decision point relates to pricing in
rural areas vis--vis urban areas. This would have a bearing on
network growth and financial sustainability of rural operators.
Many countries have geographically averaged tariffs that is
tariffs were not differentiated by different geographic areas.
In India, choice had been made to keep tariffs low in rural
areas. This was one of the factors that may make rural telecom
unviable. In Chile, operators were free to decide rural tariffs
for individual connections and rural payphone tariffs had been
kept higher than in urban areas. Given that providing rural
communications was more expensive than providing urban
communication, experts working in developing countries now
argue that regulators should consider allowing rural operators
to charge their customers more for the service.

Rural Telecom

107

APPENDIX

Sr. States/UTs
No.
(1)
1
2
3
4

5
6
7
8
9
10

11
12
13
14
15

16
17
18
19
20
21
22
23

Table A4.2.1
Category-wise RTD with Respect to Development Parameters
RTD (%)
Fixed UTD
Literacy
Rural Literacy Rural Income
(%)
Rate (%)
Rate* (%)
Per Capita
Greater
Greater
Greater
Greater
Greater
or
or
or
or
or
Value Below
Below
Below
Below
Below (Rs Average
Value Average Value Average Value Average Value Average 000s) (%)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10) (11)

Category 1: High RTD Rates


Kerala
8.45 434.8 17.71
A&N Islands
8.36 429.1 19.07
HP
5.50 248.1 37.40
Punjab
4.74 200.0 15.96
Average
6.72 325.3 18.95
Category 2: Medium RTD Rates
Gujarat
2.53
60.1 12.10
Haryana
2.43
53.8 14.84
Karnataka
2.38
50.6 11.79
AP
2.31
46.2 11.39
Maharashtra
2.29
44.9 12.18
TN
2.17
37.3 10.97
Average
2.33
47.4 11.89
Category 3: Low RTD Rates
Uttaranchal
1.47
-7.0 15.78
Rajasthan
1.36 -13.9 10.24
North East
1.08 -31.6 10.23
WB
0.95 -39.9 8.25
Orissa
0.94 -40.5 11.03
Average
1.10 -30.4 9.81
Category 4: Poor RTD Rates
MP
0.69 -56.3 6.85
J&K
0.63 -60.1 10.61
Assam
0.56 -64.6 11.37
Bihar
0.51 -67.7 7.83
UP
0.48 -69.6 8.30
Chhattisgarh
0.47 -70.3 6.30
Jharkhand
0.46 -70.9 7.56
Average
0.53 -66.5 8.09
All India
1.58
10.95
Average

SDP
Rural PopulPer Capita
ation (%)
Greater
or
Greater
Value Below
or
(Rs Average
Below
000s) (%) Value Average
(12)
(13)
(14)
(15)

61.7
74.2
241.6
45.8
73.0

90.9
81.3
76.5
69.7
81.2

40.3
25.5
18.1
7.6
25.3

77.0 107.8
57.4 54.9
51.6 39.4
44.1 19.0
61.6 66.4

10.3
NA
10.8
16.5
12.8

5.1
NA
9.9
68.1
30.2

12.1
NA
12.6
16.9
14.0

4.3
NA
8.6
45.7
20.9

74.0
67.3
90.2
66.1
72.5

2.5
-6.8
24.9
-8.5
0.3

10.5
35.5
7.7
4.0
11.2
0.2
8.6

69.1
67.9
66.6
60.5
76.9
73.5
69.7

6.6
4.8
2.8
-6.6
18.7
13.4
7.6

44.0 18.8
40.1
8.3
39.4
6.5
29.7 -19.8
45.4 22.7
47.1 27.1
41.0 10.7

14.6
14.9
11.3
11.0
11.8
12.9
12.3

48.1
50.9
14.8
12.1
19.6
30.9
25.1

15.0
15.7
13.1
11.3
16.1
14.6
14.2

29.3
35.3
12.9
-2.6
38.8
25.9
22.5

62.7
71.0
66.0
72.9
57.6
56.1
63.3

-13.3
-1.7
-8.6
1.0
-20.2
-22.3
-12.3

44.1
-6.5
-6.6
-24.7
0.7
-10.4

71.6
60.4
69.3
68.6
63.1
65.3

10.5
-6.8
6.9
5.9
-2.6
0.8

NA
NA
24.1 -34.9
42.1 13.6
41.0 10.7
37.6
1.7
35.2 -4.8

NA
NA
10.7
8.6
NA
NA
8.8 -10.7
5.7 -42.0
8.8 -11.0

NA NA
9.2 -20.7
NA NA
10.7 -7.8
6.5 -44.0
9.3 -19.7

74.4
76.6
78.2
72.0
85.0
76.3

3.0
6.1
8.3
-0.3
17.7
5.7

-37.4
-3.1
3.8
-28.5
-24.2
-42.5
-31.0
-26.1

63.7
55.5
63.3
47.0
56.3
64.7
53.6
56.2
64.8

-1.7
-14.4
-2.3
-27.5
-13.1
-0.2
-17.3
-13.3

28.5
NA
39.2
26.7
29.1
NA
NA
29.2
37.0

7.1
NA
11.1
7.0
6.7
NA
NA
7.2
9.8

8.2
NA
6.6
3.6
6.6
NA
NA
6.1
11.6

73.3
75.1
87.3
89.5
79.2
79.9
77.8
80.9
72.2

1.5
4.0
20.9
24.0
9.7
10.7
7.7
12.0

-23.0
NA
6.0
-27.8
-21.5
NA
NA
-21.2

-28.1
NA
12.9
-29.1
-31.5
NA
NA
-26.8

-29.3
NA
-43.1
-69.0
-43.1
NA
NA
-47.0

Source: Columns (2) and (4) BSNL Internal Documents, Column (10) - Indian Market Demographics Report reported in The Nature of
Rural Infrastructure: Problems and Prospects by Suman Bery, D.B.Gupta, Reeta Krishna and Siddhartha Mitra, Introductory chapter of the
Indian Rural Infrastructure Report, Columns (6), (12) and (14) www.censusindia.com, Columns (3), (5), (7), (9), (11), (13) and (15)
Authors Analysis.
Notes: NA: not available.
Categories are as per the text and Figure 4.2.1.
* Literacy Rate, Rural Income Per Capita, Per Capita SDP and Percentage Rural Population are based on data from Census India 2001.
Rural literacy rate has been calculated by us based on data from Census India 1991.

108

India Infrastructure Report 2007

REFERENCES
Rao, Pernyeszi, and Yadagiri, Kumar (2000). Micro Surveys of Rural
Telecom in India and USA and Their Implications for Indias
Public Policy.
Sen, Abhijit and Himanshu (2004). Poverty and Inequality in
IndiaI, Economic and Political Weekly, September 18, 2004,
pages 42474263.

The Hindu Business Line (2005). Saturday, January 22, 2005.


TRAI (2004). Consultation Paper on Growth of Telecom Services
in Rural India, The Way Forward, The Telecom Regulatory
Authority of India, New Delhi.
Wellenius, Bjrn (2002). Closing the Gap in Access to Rural
Communications, Chile 19952002.

S-ar putea să vă placă și