Analysis of Rural Telecommunication In India · rural markets, with a teledensity of less than 15%...

Analysis of Rural

Telecommunication In

India

Project Guide: Prof Rekha Jain

Submitted By: Pulak Piplani, PGPX 08-09

Pulak Piplani, PGPX 08-09

Table of Content Overview ................................................................................................................................................. 3

End of Monopoly ..................................................................................................................................... 4

Telecom Industry Surges Ahead ............................................................................................................... 4

Myriads of Government Bodies ............................................................................................................... 6

Effective Measure of Rural ICT ................................................................................................................. 7

Obstacles in Achieving ICT Targets ........................................................................................................... 9

Poor Infrastructure .............................................................................................................................. 9

Unviable Economics ........................................................................................................................... 13

Lack of Appropriate Content .............................................................................................................. 14

Unfriendly Local Government Rules ................................................................................................... 15

Social Norms...................................................................................................................................... 15

Lack of Innovation in Technology Development ................................................................................. 15

Lack of infrastructure sharing ............................................................................................................ 16

Regulatory Issues ............................................................................................................................... 17

Overcoming the Hurdles ........................................................................................................................ 19

Policy and Administration Changes in USOF ....................................................................................... 19

Backhaul ............................................................................................................................................ 21

Collaboration with Local Governments .............................................................................................. 22

Develop Supplementary Industries .................................................................................................... 23

Technology Innovation ...................................................................................................................... 23

Conclusion ............................................................................................................................................. 26

Appendix 1: Department of Telecommunication Objectives .................................................................. 28

Appendix 2: TRAI Goals and objectives .................................................................................................. 29

References ............................................................................................................................................ 30


Overview In an ever-increasing information intensive global economy, governments around the world are realizing

that the provision of adequate telecommunication services is absolutely vital to survival. Access to

modern telecommunication services is necessary for the development of international trade as well as

to national, regional, social and economic development. A country without an adequate

telecommunications infrastructure faces a magnitude of problems that will impede the growth of any

information based economic activity. This figure is referred to as teledensity (the number of phone lines

per 100) and is often used as an indicator of economic well-being. There is evidence to show that

telephones have a high correlation with GDP per capita. Broadly we can say that if a country has a one

per cent higher mobile phone subscription rate than another, its GDP per capita will be about $200

higher [1].

With over 300 phone subscribers, India has one of the largest of phone connections in the world, second

only to China. However a close look at the distribution of phone lines shows the great digital divide

between the urban and rural India. While the urban areas have achieved teledensity of over 70%, the

rural markets, with a teledensity of less than 15% have been deprived of telecom services.

This paper presents the current status of rural Information and Communication Technologies (ICT) and

identifies major road blocks in wide spread development of the same in rural India. It also highlights the

inadequacy of some the solutions being adopted, in form of regulatory policies, technologies and

ecosystem development, and offers alternate suggestions towards fixing the digital divide. The primary

focus of this report is on the wireless phones and high speed data services aspects of ICT. The Village

Public Telephone (VPT), which was conceived in the 8th five year plan has been rolled out in 95% of the

villages, and Rural Direct Exchange Lines (RDELs) are not evaluated in this report.

This report builds on the prior research work done by Prof Rekha Jain, on this subject. It specifically does

a critical evaluation of the USOF policy framework and takes a close look at the technological options

available for rural ICT. Primary research has been done in from of telephonic interviews of managers of

two large service providers (Tata Communication and Reliance Communication) to understand their

view on rural communication with focus on usage of WiMAX to solve rural ICT problems. Secondary

research has been conducted using resources mentioned in the reference section on this report.


End of Monopoly

Up till 1984 telecom services were under state control with the department of Posts and Telegraph

(P&T). In January 1985 telephone services were moved out from P&T and a Department of

Telecommunication (DoT), having a complete monopoly on telecom sector, was established. Telecom

sector under the monopolistic control of state run enterprise was an industry plagued with inefficiencies

and corruption. There were only 0.8 connections per hundred citizens (1994 data) far below the

worldwide standard of 10 per 100, and even lower than Pakistan’s 2 per 100. There were 8 million lines

with 2.5 million new telephone connection applications pending.

In 1994, Government of India started the process of opening up of the telecom sector with the

announcement of the National Telecom Policy (NTP). NTP target was to have a telephone connection

available on demand by 1997 and to introduce international standard Value Added Services (VAS) over

the telecom network. The 1994 NTP allowed private operators to provide mobile services. From 1994 to

government has taken several steps to open up mobile, basic telephone, long distance telephony and

internet (including broadband) services in the country.

Telecom Industry Surges Ahead

The Indian telecom industry has evolved as one of the fastest-growing sectors in the country. In the last

few months, monthly subscriber additions have averaged over 9 million, which is the fastest growth in

subscriber base world has ever seen. Wireless teledensity in India has quadrupled in the last four years,

to reach 28% in quarter ending June-2008. On 18th June 2008, India became the country with the 2nd

largest number of phone subscribers, after China, having crossed the 300 million telephone subscriber’s

milestone [3].


Figure 1: Number of telecom subscribers

Source: TRAI

However, the growth in operator revenue has not kept pace with the growth of subscriber based due to

sharp fall in ARPU. All India blended ARPU for GSM (per month) for the year ended March 2008

decreased by 11% to Rs 264 as compared with Rs 298 for the year ending March 2007. While ARPU for

post-paid services increased by 4.1% from Rs 613 in March 2007 to Rs 638 in March 2008. Prepaid ARPU

declined by 10.4% from Rs 250 in March 2007 to Rs 224 in March 2008.

Figure 2: Growth in revenue of GSM operators

Quarter Ending Revenue in INR Crores

Quarterly Growth of

Revenues

Quarterly Growth of

Subscriber Base

QE-Mar-07 10,040 8.40% 8.4%

QE-Jun-07 11,336 12.90% 9.3%

QE-Sep-07 11,903 5.00% 10.5%

QE-Dec-07 12,738 7.00% 9.7%

QE-Mar-08 14,329 12.50% 10.1%

Source: TRAI


Apart from the growth in the subscriber base, India has also witnessed a significant growth in telecom

R&D, manufacturing and product development. World's leading telecom handsets manufacturers, such

as Nokia, Samsung, Motorola and LG have their presence in India, along with leading equipment

manufacturers like Ericsson, Nokia-Siemens, Alcatel-Lucent, Motorola, Qualcomm etc.

The next wave of growth is expected to be driven by the roll our of 3G and Wireless Broadband Access

(WBA) networks. Fall in revenues from voice-based services are expected to be compensated by an

increase in Value Added Services (VAS). Currently, VAS in India accounts for 10 per cent of the operator's

revenue but is expected to reach 18 per cent by 2010, generating total revenue of over USD 5 billion [1].

India's mobile subscriber base is projected to exceed 737 million connections by 2012 growing at a CAGR

of 21 per cent. The overall cellular services revenue in India is projected to grow at a CAGR of 18 per

cent from 2008-2012 to exceed US$ 37 billion [2].

Myriads of Government Bodies

Before going further it is important to understand the role of multiple government agencies, around

which the telecommunication industry operates. At the helm of the affair is the Ministry of

Communication and Information Technology (MoCIT). MoCIT is the country’s policy maker with respect

to telecom, posts and telegraph and other means of communications. Within the purview of MoCIT

there are primarily three departments (there are many others) which oversee the working of telecom

industry.

First is the Department of Telecommunications (DoT), which has necessary executive, administrative and

financial powers to deal with various aspects of telecommunications. The department is vested with the

functions of policy formulation, licensing, wireless spectrum management, administrative monitoring of

Public Sector Units (PSUs), research & development and standardization etc.

The second agency is the Telecom Regulatory Authority of India (TRAI). TRAI has a five fold function i.e.,

(a) promotion of efficiency and competition (b) regulate arrangements amongst service providers (c)

tariff fixation (d) laying down of standards for quality of service and (e) establishing and implementing

universal service obligations. While originally the above functions were to be discharged with regard to


the telecom sector alone, its reach has now been widened to discharge the above said functions with

regard to both broadcasting and cable services.

The third authority is TDSAT or Telecom Disputes Settlement and Appellate Tribunal established under

Section 14 of the Telecom Regulatory Authority of India. This authority functions largely as an appellate

authority before which the orders of TRAI can be challenged. Its also has some original jurisdiction over

class consumer disputes.

Figure 3: Main telecom administrative bodies and their roles

Ministry of Communications and Information Technology

Department of Telecommunications

(DoT)

Telecom Regulatory Authority of India

(TRAI)

Telecom Disputes Settlement and Appellate

(TDSAT)

Policy formulation

Licensing

Wireless spectrum management

Administrative monitoring of Public Sector Units (PSUs)

Research & development and standardization

Regulate arrangements amongst service providers

Tariff fixation

Laying down of standards for quality of service

Establishing and implementing universal service obligations

Promotion of efficiency and competition

Adjudication and disposal of disputes between operators/consumers

Appellate authority with whom TRAI orders can be challenged

Effective Measure of Rural ICT

With a teledensity of over 70%, urban teledensity is significantly higher than the rural teledensity of just

13%. More worrisome, however, is the fact that this gap has been increasing year on year even when

government has been trying to improve rural ICT through several measures [3].


Figure 4: Comparison of total, urban and rural teledensity

0

10

20

30

40

50

60

70

80M

ar-9

8

Nov

-98

Jul-9

9

Mar

-00

Nov

-00

Jul-0

1

Mar

-02

Nov

-02

Jul-0

3

Mar

-04

Nov

-04

Jul-0

5

Mar

-06

Nov

-06

Jul-0

7

Mar

-08

Total Teledensity

Urban Teledensity

Rural Teledensity

Teledensity has been used as a parameter to compare the spread of ICT between rural and urban India.

However, is teledensity a right parameter to compare urban and rural ICT? To understand this we should

understand a fundamental difference between the Mobile usage patter between and urban customer

and a rural one. In urban India, like the rest of the world, mobile is considered as a personal

communication device. Hence it is common for households to have multiple mobile phones. In a sharp

contrast to this mobile phone in village is considered as a substitute to the land line, and hence it is

reasonable to expect one mobile phone per household to start with.

With rural population expected to be 832 million (in 2010), the maximum number of rural subscribers

on household basis can be expected to be around 180 million. There are already 100 million rural

subscribers and hence a short term target would be to add another 100 million subscribers in next

couple of years, at monthly subscriber growth rate of average 4-5 million. This would mean that a rural

teledensity needed in short term is around 25%, a number far lower than the current urban teledensity

of 70%.


Based on the arguments above it is appropriate to also measure the spread of ICT in terms of

“coverage”, that is the percentage of villages which have telephone coverage. With 69% of villages

covered by mobile network, we have come a long way in last decade. The challenge is to increase the

mobile coverage to 100% so that every citizen in the country has “access” to a mobile phone within

his/her village.

Another important measure of the spread of ICT is the density of population having data services

(broadband or low speed data). Both “teledensity” and “coverage” measurements do not explicitly

factor in the spread of data services to rural India. TRAI quarterly reports publish the number of wireline

internet subscribers and number of broadband subscribers. However, it does not provide data about

how many of these data (internet and broadband) subscribers are from in rural India. Given the state of

rural ICT it is safe to assume that the spread of data services in rural India is far below its teledensity of

13.

Hence, an effectively measure of health of rural ICT includes teledensity and coverage data. In both

these measures it is important to include both data and voice services. The immediate target should be

get high coverage of data and voice services (>90%) so that every citizen of the country has access to ICT

while simultaneously targeting an average rural teledensity of 25, on a region by region basis.

Obstacles in Achieving ICT Targets

Fulfillment of short term targets (by 2012) for rural ICT, outlined in the section above, will require

significant changes in the regulatory, infrastructure, social, economical and political working on the

country. The major road blocks will have to be identified and plans drawn up to overcome each of these

road blocks.

In this section, major road blocks in meeting ICT targets are identified.

Poor Infrastructure

Electricity

Availability of electricity or lack there of, is one of the biggest challenges adversely affecting the rollout

of services and sustained functioning of rural telecom facilities. At many as 20% of villages (1,20,000 in


number) do not have electricity supply. Even in villages which do have electricity supply, it is often

difficult to get state electricity boards to give electric connection to the BTSs since state governments

have not identified telecom as a priority sector. As a result, BTSs in a large number of rural areas run on

generator power. The use of generators in such remote un-accessible rural areas further increases the

cost of operations and makes the service economically unviable. Additionally, the electricity used in

rural telecom systems are charged at full commercial tariff further increasing the opex of rural ICT.

Apart from the problem on the equipment side, the lack of electricity in consumer home/kiosks is also a

major obstacle. The spread of internet has been significantly hindered due to non availability of regular

electric supply in rural India. The villages that do not have electricity connection need to have

generators/UPSs for powering PC which make the usage economically unviable; even when the

computer is shared between large number of villagers.

Figure 5: Electricity Vs Mobile coverage in villages

State/Service Area

Total No

of

districts

DHQ

covered

by

mobile

Total No.

of

inhabited

Villages

(2001)

Villages

covered

by

mobile

Villages

covered

by

electricity

% Rural

Electric

Coverage

% Rural

Mobile

Coverage

Andhra Pradesh 23 23 26613 19393 26565 100 73

Assam 23 23 25124 10041 19081 76 40

Bihar including Jharkhand 59 59 68369 48050 26892 39 70

Delhi 9 9 158 158 158 100 100

Gujarat 28 28 18159 11856 17940 99 65

Haryana 20 20 6764 6764 6759 100 100

Himachal Pradesh 12 12 17495 8370 16891 97 48

Jammu and Kashmir 14 14 6417 3018 6301 98 47

Karnataka 28 28 27481 25000 26771 97 91

Kerala Including

Lakshadweep 15 15 1372 1372 1372 100 100

MP Including

Chhattisgarh 66 66 71861 23928 69006 96 33


Maharashtra including

Goa 37 37 41442 16386 40351 97 40

North East 52 30 14803 2506 10119 68 17

Orissa 30 30 47529 28000 37663 79 59

Punjab 21 21 12301 10845 12228 99 88

Rajasthan 32 32 39752 26835 37276 94 68

Tamil Nadu including

Pondicherry 34 34 15492 15492 15480 100 100

UP Including Uttaranchal 83 83 113703 112761 70173 62 99

West Bengal Including

Andaman and Sikkim 24 24 38896 36337 32110 83 93

Total 610 588 593731 407112 473136 80 69

Source: TRAI

Backhaul connectivity

Rural India suffers from poor availability of backhaul connectivity. Unlike urban areas where OFC is

largely deployed to provide the backhaul connection, about 80% of the rural BTS (84458 out of 1,06,518

BTSs) [1] are on microwave system. Laying of OFC has been slow and expensive propositions due to

bureaucracy and corruption involved in getting the “Right of Way” (RoW) which is discussed later in

more details.

Figure 6: Telecom resources (as of Sept 2008)

1

Total Number of Telephone subscribers (Wireline + Wireless in

million) 353.66

a Rural(million) 101.71

b Urban (million) 251.95

2 Total number of Wireless subscribers (million) 315.31

a Rural(million) 90.76

b Urban(million) 224.55

3 Teledensity 30.64


a Rural 12.74

b Urban 72.47

4 Total Number of Telephone Exchanges of BSNL 38,202

a Rural 29,492

b Urban 8,710

5 BTSs

a Rural 1,06,518

b Rural Shared 29,723

c Total BTS including Urban 2,22,137

6 Connectivity of Rural BTSs

a No. of BTS on OFC/UG Cable 21,795

b Microwave 84,458

c Satellite Link 265

Source: TRAI

When backhauls based on OFC or Microwave are not available, service providers use satellite links as

backhaul. Getting VSAT links requires long approval process involving DoT, ISRO, NOCC and WPC

(between 6months to 1 year, mainly due to delay at DoT)[1]. Additionally, the satellite segment charges

of ISRO, monitoring charges by NOCC and WPC spectrum charges makes it a very costly to use satellite

links for rural backhaul.

Last Mile

Last mile in rural India does not exist. Last mile spread is limited mostly to the recently deployed RDEL’s

and hence all new wireline connection requires putting last mile copper. The cost of laying down last

mile is prohibitive.


Roads and Supply Chain

The poor quality of road and supply chain in rural India increases the operating expenditure. Rural BTSs

require regular bio fuel and spare parts for up keep. Lack of proper supply chain (and condition of roads)

make is both expensive and time taking to get these to rural BTS locations.

Unviable Economics

Low Revenue and High Operating Expenses

One can look at Revenue as a product of the number of subscriber and the ARPU.

India is a large country with an area of about 3,287,000 square kilometers. Rural India is sparsely

populated with approximately 750 million people spread over 600,000 villages, more than half of these

have population of under 1000. Hence the number of subscriber per BTS is low in rural India.

The other challenge of rural ICT is the low Average Revenue per User (ARPU). Even at national level,

India has an overall low ARPU of less than $7 which falls further to approx $ 2 for rural areas.

Hence, revenue generating capability per BTS in rural India is far lower than urban regions.

Figure 7: ARPU in Rs per month for QE-Mar-08

Circle Postpaid Prepaid Blended ARPU

Circle A 632 225 264

Circle B 543 214 232

Circle C 590 244 266

Metro 712 235 333

All India 638 224 264

Source: TRAI

What makes matter worse is that the operation and maintenance cost of rural ICT is significantly higher

than urban India. These are primarily due to the lack of electricity, non availability of trained technicians

in rural locations and poor availability of spare parts.

As an example, let’s understand the operation cost of a BTS on diesel generator in a village which has no

connection to power grid. Typically, BTS sites are backed by a 15-25 KVA diesel generators. A typical 15

KVA diesel generators consumes over 2.5 ltr of diesel every hour [12]. Assuming diesel price of Rs 35 per


liter, an operator would have to spend close to Rs 0.8 million just on a diesel procurements charges.

Include the cost of transporting diesel, and factoring that a lot of generators are 25 KVA or higher, the

diesel cost per year per BTS jumps to upwards of Rs 1 million per year. Going with an average ARPU Rs

1200 per annum, an operator needs approx 833 subscribers per BTS or 1 BTS for a population ~6500

people (factoring in current rural teledensity of 13%). This means just to recover the cost of diesel for

one BTS – it (that 1 BTS) has to exclusively cover 5-7 villages (average village populations of 1000). This

gives us the sense of the huge gap in operating expense of rural ICT and its revenue generating

capabilities.

Affordability of ICT

Rural India has lower per capita income than urban India. The startup capital for a new phone

connection, which is still upwards of Rs 2000, is outside the reach of a common villager.

The cost of for internet access is even higher primarily driven by high cost of desktop computers and the

need for expensive UPSs/generators to run them.

Hence a lot of villagers are not able to afford personal phones even when they are available in their

villages.

Lack of Appropriate Content

Low regional content available

The lack of relevant regional content available on data networks has significantly limited the role of ICT

to primarily a “voice only service”. ICT as a voice only service is also hampered because of the

negativities of “network effect” – a problem where villager does not knows anyone who has a phone,

and hence has no need to make phone calls.

Supplementary industries

The lack of supplementary industries like tele-medicine, distance education, micro finance, E-

Governance etc, has also prevented the wide spread use of ICT in rural India.


Unfriendly Local Government Rules

Acquisition of land

Acquisition of land for deployment of telecommunication equipment is rather slow and cumbersome.

There are many rural only issue like forest land, land owned by reserved category people, tribal land,

agriculture land etc which make it more difficult to acquire necessary permissions.

Right of way

As mentioned before, rural India suffers from significant deficiencies in underground OFC and last mile.

However, operators trying to lay down new cable face significant obstacle in getting clearances from

multiple civil authorities (multiple gram panchayats, forest officials etc). Even getting permissions to lay

down cable along a kaccha road requires long lead times and exorbitantly high amount of money.

Social Norms

Usage of mobile phone as replacement for land line

For rural families phone is not a personal object. Mobile phones, like land line, are used by the entire

house hold. Assuming an average household consist of 4 members, a teledensity of 25 could means that

every person in the village has access to mobile phone in his house. Unless this attitude of rural family

changes (is there a need to change this?) the rural teledensity will remain low.

Low literacy levels

Low literacy level of rural population impacts their ability to use phones and even more significantly the

usage of data services. As literacy levels increase there is going to be an inherent growth in demand for

ICT from rural population.

Lack of Innovation in Technology Development

Some of the challenges of deploying ICT in rural India could have been overcome by innovation and new

technology development. So far very little progress has been made is developing and deploying systems

which have been designed specially to overcome challenges of rural India.

Currently most of the rural ICT are landlines (VPT, RDEL, PCO – both voice and data) or wireless systems

based on GSM and CDMA networks (mobile and WLL) technologies. None of these networks standards


were developed specially for rural ICT. These networks are suitable for urban, high population density

deployments and not for deployment in sparsely populated rural area.

Land lines based phones and data connection avoid some of the problems faced by rural ICT like the

electricity connection to rural BTSs, the operations and maintenance issues etc. However, land lines

have significant disadvantages in rural setup due to the missing last mile. As discussed before laying

down last mile cable requires high capital expenditure and there are significant Right of Way issues.

Wireless networks (GSM and CDMA) avoid the problem of costly wires and Right of Way issues, but they

suffer extensively from the lack of infrastructure. These networks are high on power consumption and

the lack of electricity grid, as discussed earlier, requires that the rural BTS’s be run on diesel generators

which increases the operating cost of these networks. Additionally, these wireless networks are very

complex to setup and requires skill professionals for the upkeep of the network – making it unsuitable

for rural deployments.

CorDect, developed by the TeNet Group, is a rare example of indigenously developed technology for

rural ICT. CorDect is based on fixed Wireless Local Loop (WLL) technology. corDECT provides the most

cost effective per-line cost available in country. The point-to-multipoint wireless radio frequency

technology supports simultaneous voice and data channels of 35-70 kbps to subscribers within a 10 km

radius of its broadcast location. Coverage is extendable up to 25 km through the use of a repeater. Its

low costs, ease of deployment, and minimal maintenance requirements make corDECT ideally suited for

rural use. However, CorDect has not seen widespread deployment by major operators mostly because it

is seen as a proprietary technology and does not have a full eco-system support consisting of multiple

suppliers, standardization bodies etc.

Lack of infrastructure sharing

According to industry estimate, setting up a cellular tower (BTS) cost around Rs.50 lakhs inclusive of

equipment, power plant, etc [12]. Urban India has seen a surge in number of shared towers between

competing operators. The creation of telecom infrastructure companies like Quippo, Xcel, GTL etc have

created an eco-system where operators find it economically beneficial to share infrastructure. However,

in rural India sharing of tower has been extremely low. Out of 1,06,518 towers deployed in rural India

only 29723 towers are shared[1]. This is primarily because the incumbent operators, BSNL, owns


majority of the rural infrastructure and uses it as a source of competitive advantage. It is in no mood to

give away it first mover advantage by sharing its rural infrastructure with other competitors.

Regulatory Issues

Universal Service Obligation was introduced in NTP 99 view the aim to provide every citizen of the

country, access to basic telecom services at affordable and reasonable prices [13]. The Government the

following universal service objectives:

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 head quarters by the year 2000

3. Achieve telephone on demand in urban and rural areas by 2002

NTP 99 also created a Universal Service Obligation Fund (USOF) to fund the USO. It was decided that

USOF should be raised through a 'universal access levy' which would be 5% of the Adjusted Gross

Revenue (AGR) earned by all telecom service providers except the pure value added service providers

like Internet, Voice Mail, E-Mail service providers etc.

USOF is headed by the Administrator whose responsibilities include formulation of procedures for

selection and approval of projects, disbursement from the fund and the overall implementation of the

project under USO funding. The Office of USOF Administrator functions as an attached office of the

Department of Telecom, Ministry of Communications and IT.

USOF is expected to fund the following streams:

Stream I -> Installation and maintenance of VPT, replacement of MARRT1

Stream II -> Provision for RDELs

Stream III ->Creation of infrastructure for mobile service in rural areas

Stream IV -> Broadband connectivity to villages

Stream V -> General infrastructure for providing ICT in rural area

Stream VI -> New technology development for rural use

1 Multi Access Radio Relay Technology


Even though USOF was established with a view to promote rural ICT, there have been several

implementation and policies issues which have limited the effectiveness of USOF.

Low level of utilization

With a total fund of Rs 20404 crore USOF in India is second only the USOF in the US. However, a very

small portion of USOF has actually been disbursed in the last 5 years. As of Dec 2008 only Rs 6723 crore

were committed for rural infrastructure development.

Even in the Rs 6723 crore which has been committed almost 20% of the money has been used for new

VPT and MARRT replacements and 75% of the money has been used for RDELs. Majority of the USOF

allocations has happened to BSNL, the government owned incumbent.

The amount of money allocated to wireless infrastructure development has been miniscule.

Inefficiencies in USOF disbursement processes

As discussed above only 32% of USOF fund has been allocated for use, of which only 5% is allocated

towards wireless infrastructure. BSNL has won 78% of contracts for USOF supported tower constructions

but has made little on no progress on its contractual obligations. 90% of towers owned by BSNL are

incomplete.

The lack of progress with USOF funded wireless infrastructure can be pinned downed to number of

inefficiencies in the USOF disbursement process.

Bidding process: India’s USOF is given out based on a reverse bidding process. The bidding starts at a

predefined benchmark and bid downwards. The firm bidding the lowest bid amount is eligible to be

reimbursed that amount from USOF for the identified project. Benchmarks were set using cost

information primarily from the incumbent, BSNL are often unviable. Additionally, the bidding process

has long lead times of up to 9 months.

Restrictions on usage of USOF funds: Even though the objective of USOF is to support the net cost (Cost

– Revenue), the administrator of USOF is disbursing funds only for infrastructure creation that too

mostly limited to BTS tower. Other expensive items like the backhaul are not covered. This approach will


lead to creation of infrastructure towers, but since the operating costs are not covered, operators price

their services higher (to recover operating expenses) which reduces telephone off take. This will result in

an increase in “coverage” but not in “teledensity”.

The other restriction of USOF disbursement is that only one operator is supported by USOF per area.

This restriction reduces the competitive landscape since once BSNL wins a USOF contract for a particular

area A, it effectively locks that location off from other operators. Even though the timelines of

infrastructure deployment are specified in the contracts, they are rarely followed and penalties are

rarely imposed.

Yet another restriction with USOF is that the location of USOF funded tower is decided by USOF

administrator. Most operators feel that once the rural Short Distrance Calling Area (SDCAs) have been

identified where the mobile infrastructure needs to be installed, then the choice of location and the

number of towers required in that area should be left to the discretion of the service providers. Given

that there is a large gap between the Capex required to erect towers and the average subsidy given

from USOF, operators will have no incentive of setting up extra towers just for the sake of subsidy.

Overcoming the Hurdles

Policy and Administration Changes in USOF

It is clear that USOF has not been effective in creating a significant off take of rural ICT. As discussed

above there are both policy issues and well as implementation issues which need to be addressed to

make USOF more effective.

The most important change that needs to be done in USOF is to increase the utilization of USOF

disbursements. Some operators have argued that the percentage of USO contribution should be

reduced to less than 5% given that there is large amount of unused USOF lying around. While on the

other side other operators have argued that the percentage contribution to USO should be made

flexible and decided at the beginning of the year as to what percentage should be contributed.

Neither of these arguments makes sense. The reduction in percentage contributions towards USOF is

not warranted since significant parts of the country (over 31%) still does not have wireless coverage, and


most of these areas are rural areas which can benefit from USOF support. The second argument of

flexible percentage contribution to USO will result in a significant increase in operators financial

uncertainty and cause cash flow fluctuations from year to year.

The solution to the large build up of funds in the USOF is to understand and improve the way USOF is

administered, which includes the overall USOF objectives for the year, bidding, tracking and fund

disbursements processes. USOF today does not have a well defined plan with clearly identified targets

on year by year basis. The first step would be define a rolling year on year target for the USOF

administrator, to which s/he needs to be held accountable.

The next step in USOF administration is to define what costs will be covered under USOF. This should be

driven by the overall objective of USOF, that is an increase in both “coverage” and “teledensity”. As

discussed before providing USOF support for VPT, Replacement of MARRT, RDELs and mobile

infrastructure (limited to towers) is helping increase coverage. The teledensity is being address only in a

limited way through RDELs. To increase mobile teledensity USOF administrator needs to look at covering

net cost (Cost – Revenues). The cost in this case would include the backhaul, land cost, operations cost

(fuel, security, maintenance), CEP etc. The aim is to keep the tariff under a certain critical threshold level

which allows a significant increase in teledensity. USOF support should also be available to deployment

of broadband services in government run hospitals, schools and colleges. To encourage growth of data

services local content is essential. USOF fund could be made available to development of local/regional

content.

The current bidding process needs to be re-looked and un-necessary constrains like the exact location of

the tower, limiting USOF support to only one operator per area should be abolished. TRAI study paper

published in Dec 2008 [1] states “The USOF should do away with the bidding process and only

concentrate on planning and monitoring of the implementation of the scheme. Based on the experience

of Phase-I, it should determine the subsidy support for setting up towers in different regions and any IP-

I/CMTS/UASL operator, who sets up the tower in designated Short Distance Calling Area (SDCAs) should

be paid subsidy, irrespective of whether the tower is used by one operator or more than one.” A

mechanism like the one stated above would encourage competition between the operators to roll out

their networks in rural area quickly. However, it is suggested that the subsidy provided by USOF be such

that it promotes sharing of towers by various operators rather than encouraging each operator to setup

its own towers.


Once the administrator has freed himself off the bidding responsibilities he will have more time for

monitoring of projects sponsored by USOF. A regular dashboard based monitoring of the projects needs

to be done, so that issues arising in the execution phase can be tracked on regular basis and feedback to

the decision making bodies can be provided. USOF Administrator should be able to impose penalties on

any schedule slippages. Currently, even though penalty clauses exist they are rarely imposed. The bigger

problem is that there is no clarity as to why majority of BSNL USOF supported infrastructure activities

are behind schedule. Is this a systemic problem?

For USOF administrator to function independently and fairly, it should to be separated from the DoT. As

per TRAI recommendation “A High Power Governing Council comprising of the representatives from

Department of Telecom, Information Technology, Education, Health and Rural Development could be

constituted for necessary guidance and inter-ministerial coordination” [1]. This independent committee

will have the authority and will to take action on incumbent operators who are not able to (or not

willing) to live up to the USOF supported infrastructure roll out plans.

Backhaul

Rural India suffers from the lack of OFC backbone which can be used as the backhaul and hence depends

extensively on the microwave and VSAT technology for backhaul usage. Hence the short term need is to

increase the availability of microwave and VSAT for backhaul usage. USOF subsidies should be provided

for the appropriate backhaul solutions adopted by the operators.

WiMAX is a possible solution for a point to point backhaul network. Combining capacity, distance, and

secure licensed frequencies, WiMAX can provide an economically viable backhaul solution for rural

WiMAX networks. Spectrum efficiency (payload/Hz) is enhanced using sophisticated modulation

techniques, up to 64QAM. Channels as narrow as 1.75MHz can transport 8.6Mbit/s, increasing to

65.4Mbit/s for 14MHz channels. Such capacity can readily support WiMAX base-stations scaled to

support low customer densities typical in rural areas.

Given that WiMAX has the necessary eco-system with standardization bodies defining standards and

multiple equipment manufacturers offering standards compliant interoperable solutions, the chances

are that WiMAX solution might result in large scale deployment. The sub 900 MHz spectrum has

superior propagation characteristics and is better suited for rural deployments. It is recommended that

DoT issues the 700 MHz spectrum for point to point WiMAX backhaul network.


Similarly, VSAT links should be made available to service provides in a time bound economical manner to

connect their remote BTSs to their core networks. Currently VSAT links suffers from long delays due to

multiple clearance agencies involved and the high cost charged by ISRO. DoT/TRAI should set up

tripartite agreements with other government bodies for ensure quick and economical access to VSAT

links wherever required.

In the long run bandwidth provided by Microwave or VSAT will not be sufficient to cater to the

bandwidth hungry applications like entertainment, tele-education etc. For these applications an optical

fiber network is required to be available up to the mobile towers. Currently around 6.7 lakh route

kilometers of optical fiber is present across India. Out of the existing 29000 rural exchanges of the

incumbent (BSNL) in the country, majority of them (around 70%) have OFC connectivity. However,

majority of this connectivity has very low bandwidth (8 Mbps) and therefore can not be shared. This

bandwidth should be upgraded to STM-1 by USOF and BSNL should be mandated to share at least 2/3rd

of the enhanced bandwidth with other service providers.

Additionally, it is important to look at the entire OFC network in the country as a national resource

which can be shared between competing operators at an appropriate cost. The OFC network in India has

improved significantly over the years. Numbers of non traditional telecom companies (like GAIL,

RAILTEL, Power Grid) have laid down large OFC networks which can be used for rural ICT.

Collaboration with Local Governments

Rural telecom has been severely impacted due to non corporation from local government. We had

discussed some of the issues like Right of Way, access to land , connection to electricity grid, high

commercial changes for electricity used in rural ICT etc in previous sections.

In states where local governments have come forward to help the spread of rural ICT have done much

better than other states where local government has been passive, or in some cases obstructive. States

like Kerala, Himachal Pradesh and Punjab have achieved higher teledensity (over 20 against a national

average of 13). DoT must try to work with the local and state governments to ensure their full support.

The direct correlation between economic well being of a region to its teledensity must be sold to the

governments to enlist their support. However, given the level of corruption in some states this is an

uphill task.


On the data communication side, the role of state government becomes even more important. The data

collected from number of government and NGO rural initiatives have shown that the projects which

have local government backing have better chance of long term sustainability and spread. E-Governance

applications have been significant drivers for adoption of ICT in rural India in many states.

Develop Supplementary Industries

Supplementary industries like education, health, entertainment, e-governance, microfinance increase

the appeal of ICT for the rural masses. Development of these industries will have a significant positive

rub off on the off take of rural data services.

The supplementary industries/applications can be sub-divided into three types of offerings [10]:

1. Informational services disseminate generic (non-customized) information, such as education,

information on agricultural practices, weather forecasts, and contact information.

2. Transactional services involve an exchange of specific (or customized) informational services or

funds between two or more parties using the ICT infrastructure. Examples include micro

finance, e- commerce and email.

3. eGovernance services refer to transactional services that involve local, state, or national

government. Providing land records, submitting user complaints to local officials, and

confirming a user’s presence on electoral rolls are examples.

It is important to develop these applications types in local languages so that vast masses of rural

population can use them. The increase of teledensity will largely depend on the success of these

applications.

Technology Innovation

The development of rural telephony presents some unique challenges which have been extensively

dealt with in the initial part of this paper. Technology can be used to overcome some of these challenges

as proven by the corDECT system designed by TeNET.

The Indian design and deployment of corDECT, a system based on the original digital cordless system,

DECT, offers a potential solution to problems of rural ICT. The corDECT system provides extended

coverage of about 10 km for about half the price of standard WLL. The corDECT system also provides


some mobility, which the WLL systems do not. Another advantage of corDECT is its ability to provide

data connections with speeds up to 70 kbps. CorDECT is probably the most innovative indigenously

developed solution for rural ICT. However, corDECT has had limited success in the vast country with

huge rural ICT needs. This is primarily because of lack of eco system for corDECT system. corDECT is seen

as a proprietary technology. Major service provides have not fully committed to this technology for the

fear of dependency on a small group of researchers.

The corDECT experience provides some valuable lessons. It shows that there are two things that are

needed for widespread deployment of a technology. The first, and the more obvious one, is that the

technology should be suitable for the problem it is trying to address, should be cost effective and should

meet the regulatory needs. The second, and the more important, message is that a new technology

needs to have a critical eco system support to be considered for widespread use. Eco system support

includes, at the minimum, a standardization body which defines the standards that all equipment

providers adhere too, provides certification of equipment manufactured by various equipment providers

etc. The eco system would also include at least a handful of major equipment providers who develop

equipment as per the standard specification, perform interoperability tests with other vendors etc.

corDECT failed to build a suitable eco system support.

The good news is that India is soon going to auction 3G spectrum to the service provides. 3G spectrum

offers around 4-5 times the voice capacity of 2G spectrum which helps with the economies of rural ICT.

3G can also be a way forward to achieve the Government’s broadband objectives. In addition, it will be a

good solution for education, telemedicine, etc. 3G could thus be a key tool that could be used to deliver

extremely affordable voice and drive teledensity in rural India.

As a proof of concept that 3G services can be commercially deployed for rural ICT, Ericsson has started a

rural service called “Gramjyoti”. Gramjyoti is a HSPA-powered rural broadband demo network that

delivers the benefits of 3G across 18 villages and 15 towns in Tamil Nadu. As a part of this select group

of villages and towns are now a part of the internet and broadband revolution. Villagers can visit the

citizen centers at Manamai, Thiruvidanthai & Vadugambadi, to log into a high speed internet connection

and know the latest selling rates of agriculture produce. Children can be taught through distance

education, by a teacher sitting in Delhi. Villagers can get treated by doctors, who will interact through

video-conferencing from Chennai, when the Gramjyoti van visits their village.


We have already discussed the use of WiMAX as a solution for backhaul problem. WiMAX can also be

used in the point to multipoint mode to solve the last mile problem in rural ICT. BSNL has already started

significant WiMAX deployments in rural India and aim to cover as many at 16000 villages by end of 2009.

There are innumerable debates around the suitability of 3G as a solution for rural ICT vis-à-vis the

WiMAX solution. There are pros and cons on both sides (WiMAX offers significantly higher range than

3G, 3G broadband speed does not fall as quickly with distance as it does for WiMAX etc). In this paper I

do not dwell in detailed evaluation of these technologies as it is evident that both technologies have a

play depending on objectives of service provider and environmental conditions in which the network is

being deployed.

While new standards like HSxPA and WiMAX are being hotly debated, there are yet other innovations

being targeted towards rural ICT. A case in point is the development of WorldGSM by Vihaan Networks

Limited (VNL). VNL believes that voice is the primary driver for rural ICT and hence has focused its

energies on developing a rural solutions based on GSM technology. To address the rural market, VNL has

designed the WorldGSM™ solution with the following characteristics:

1. Low power: at less than 100W per Base Station, the entire system can be run on solar power.

No power grid or generator is necessary.

2. Low cost: a fraction of the cost of traditional GSM Base Stations. It is therefore profitable at

very low densities and ARPUs.

3. Fully GSM standards compliant: easily links to existing networks, dramatically extending their

reach.

4. Self contained: With BSC and MSC functionality integrated and deployed in the field on Base

Station towers.

5. Self deploying: the entire WorldGSM™ Base Station packs into two carts and is easily installed

by unskilled field staff that may not be able to read or write. It does not require buildings, power

or air conditioning. The installer has only to point it south and turn it on.

6. Near Zero Maintenance: top up the batteries every three months; update software remotely

and perform simple swap repairs if needed.


7. Cascading Star Architecture™: a unique, modular architecture optimized for low-cost rural

expansion; with local switching to minimize backhaul.

Another area where technology can play a significant role is in managing the fuel cost in rural areas

where there is no connection to electric grid. To run their telecom networks in India, operators have to

spend billions on power and fuel. Energy management is the biggest component of an operator's

operating expenditure. According to an ABI research report, network infrastructure accounts for 80% of

this opex. Therefore, operators are focusing on reducing power consumed per BTS site.

Idea Cellular, Ericsson and the GSMA's Development Fund teamed up to develop bio-fuels as a power

source for wireless networks in rural India. In a pilot project, bio-fuels were used to power mobile base

stations located in Latur, Maharashtra, where main electricity is highly unreliable. In the first phase, four

BTSs in the Maharashtra circle were powered by bio-fuels. After completion of this phase, Idea started

powering approximately 350 base stations in Andhra Pradesh with waste cooking oil. These base

stations were made to run on 80:20 blend of diesel fuel and non-edible oil. The green project success in

AP can be attributed to a favorable ecosystem in the region where an entrepreneur was engaged for

sourcing, blending and distribution of the fuel [11]. Reliance is looking for an opportunity to deploy wind

and solar energy solutions to run their sites. It targets to run approximately 10,000 sites using renewable

energy sources. As an alternative to diesel, Tata Teleservices is experimenting with Liquefied Petroleum

Gas (LPG).

Innovations like Gramjyoti and WorldGSM are expected to drive growth of rural ICT in the coming years.

After a lull of a decade suddenly there has been a spurt of new technical developments which solve the

problems faced by rural telephony. On the other side, the ongoing experiments with bio-fuels and

alternate energy might throw up innovative solutions which could help reduce the largest opex item of

rural ICT. These are indeed exciting times for rural telecommunication.

Conclusion

Rural ICT in India is on the high growth path; Teledensity targets set in NTP 99 for year 2012 had already

been surpassed in 2008. Government has set up policy framework to further increase the growth of

rural ICT. USOF is the most significant piece in the policy framework designed to grow rural teledensity

and coverage.


However, there are significant problems which limit the widespread adoption of ICT in rural India. These

issues must be fixed for continued growth and development of rural telephony.

The primary changes recommended in this report are:

Changes in Policy and Administration in USOF

o Laying out objective of USOF

o Scope of funding under USOF

o Changes in administrative process (No bidding, no limitation on number of operators using USOF support per area, location of tower not decided by administrator, monitoring of USOF funded project)

Backhaul Improvements

o Improvements in OFC using USOF funding. Re-use of OFC backbone of GAIL, Railtel etc

o Usage of WiMAX in backhaul. Auction of 700 MHz spectrum.

o Easing of regulations and controls around VSAT use

Building Collaboration with Local Governments to fix issues with right of way, access to land,

connection to power grid, discounts on electricity charges, reductions of sales tax of mobile

handset etc.

Development of Supplementary Industries like entertainment, distance education, e learning,

mobile health etc and development of regional content using local languages.

Technology Innovation in area of telecom and renewable energy.

There is a high possibility that the industry will continue to grow steadily for the next few years. Gartner

predicts that the teledensity will cross 60% by 2012 [6].

Figure 8: Project of population and teledensity

2007 2008 2009 2010 2011 2012

Penetration (in %) 19.8 29.7 40 47.8 54.8 60.7

Population (in Millions) 1,135.60 1,151.60 1,167.50 1,183.30 1,199.00 1,214.50

Source: Gartner (April 2008)


Appendix 1: Department of Telecommunication Objectives 1. Policy, Licensing and Coordination matters relating to telegraphs, telephones, wireless, data, facsimile and telematic services and other like forms of communications. 2. International cooperation in matters connected with telecommunications including matters relating to all international bodies dealing with telecommunications such as International Telecommunication Union (ITU), its Radio Regulation Board (RRB), Radio Communication Sector (ITU-R), Telecommunication Standardization Sector (ITU-T), Development Sector (ITU-D), International Telecommunication Satellite Organization (INTELSAT), International Mobile Satellite Organization (INMARSAT), Asia Pacific Telecommunication (APT). 3. Promotion of standardization, research and development in telecommunications. 4. Promotion of private investment in Telecommunications. 5. Financial assistance for the furtherance of research and study in telecommunications technology and for building up adequately trained manpower for telecom programme, including- (a) assistance to institutions, assistance to scientific institutions and to universities for advanced scientific study and research; and (b) grant of scholarships to students in educational institutions and other forms of financial aid to individuals including those going abroad for studies in the field of telecommunications. 6. Procurement of stores and equipment required by the Department of Telecommunications 7. Telecom Commission. 8. Telecom Regulatory Authority of India. 9. Telecom Disputes Settlement and Appellate Tribunal. 10. Administration of laws with respect to any of the matters specified in this list, namely:- a. The Indian Telegraph Act, 1885 (13 of 1885); b. The Indian Wireless Telegraphy Act, 1933 (17 of 1933); and c. The Telecom Regulatory Authority of India Act, 1997 (24 of 1997). 11. Indian Telephone Industries Limited. 12. Post disinvestment matters relating to M/s Hindustan Teleprinters Limited. 13. Bharat Sanchar Nigam Limited. 14. Mahanagar Telephone Nigam Limited 15. Videsh Sanchar Nigam Limited and Telecommunications Consultants (India) Limited. 16. All matters relating to Centre for Development of Telematics (C-DOT). 17. Residual work relating to the erstwhile Department of Telecom Services and Department of Telecom Operations, including matters relating to- a. cadre control functions of Group ‘A’ and other categories of personnel till their absorption in Bharat Sanchar Nigam Limited; b. administration and payment of terminal benefits. 18. Execution of works, purchase and acquisition of land debitable to the capital Budget pertaining to telecommunications.

Source: DoT website


Appendix 2: TRAI Goals and objectives

Increasing tele-density and access to telecommunications in the country at affordable prices

Making available telecommunication services which in terms of range, price and quality are

comparable to the best in the world

Providing a fair and transparent policy environment which promotes a level playing field and

facilitates fair competition

Establishing an interconnection regime that allows fair, transparent, prompt and equitable

interconnection

Re-balancing tariffs so that the objectives of affordability and operator viability are met in a

consistent manner

Protecting the interest of consumers and addressing general consumer concerns relating to

availability, pricing and quality of service and other matters

Monitoring the quality of service provided by the various operators

Providing a mechanism for funding of net cost areas/public telephones so that Universal Service

Obligations are discharged by telecom operators for spread of telecom facilities in remote and rural

areas

Preparing the grounds for smooth transition to an era of convergence of services and technologies

Promoting the growth of coverage of radio in India through commercial and non-commercial

channels

Increasing consumer choice in reception of TV channels and choosing the operator who would

provide television and other related services.

Source: TRAI Website


References

1. TRAI Paper seeking suggestion on “Measures to Improve Telecom Penetration in Rural India –

The next 100 million subscribers”, accessed from TRAI website on 18-Feb-2009

2. Prof Jain and Prof Raghuram (2005), “Study on Accelerated Provisions of Rural

Telecommunication Services”

3. Prof Jain, “Accelerating Indian rural telecom services: Policy and Regulatory Approaches”

4. Prof Jain, Response to TRAI Paper seeking suggestions on “Measures to Improve Telecom

Penetration in Rural India – The next 100 million subscribers”, accessed from TRAI website on

18-Feb-2009

5. Ernest and Young (2006), “From Emerging To Surging: India Telecom 2010”

6. Quotes of Gartner report accessed from “http://www.domain-

b.com/industry/telecom/20080702_wireless.html” on 18-Feb-2009

7. Report by TRAI, “Indian Telecom Services: Performance Indicators April – June 2008”.

8. Ministry of Communication and Information Technology web site, http://www.moc.gov.in/

accessed on 18-Feb-2009

9. Department of Telecommunication web site, http://www.dot.gov.in/, accessed on 18-Feb-2009.

10. National Informatics Centre and Stanford University Report (2005), “Enabling ICT for rural India”

11. Prasoon Srivastava & Arpita Prem, “Green Tangle” accessed from

http://voicendata.ciol.com/content/bporbit/initiatives/109010106.asp, on 28-Feb-2009.

12. TRAI Recommendations(2005) on “Growth of telecom services in rural India, The way Forward”

13. NTP 99 Act, accessed from TRAI Website (http://www.trai.gov.in/TelecomPolicy_ntp99.asp) on

18-Feb-2009.

14. G Venkatesh and Ashwin Ramachandra, “Can 3G technologies benefit rural India”

15. “HSDPA: More effective and cost efficient use of precious bandwidth” (2005), Lucent

Technologies white paper.

Analysis of Rural Telecommunication In India · rural markets, with a teledensity of less than 15%...

Documents

Transcript of Analysis of Rural Telecommunication In India · rural markets, with a teledensity of less than 15%...