Taking Telecom Beyond Cities

In the Indian telecom sector, things have changed very fast since the opening
of the sector to private operators in 1994-95. The overall teledensity was less
than 1% as on April 1986 and now, September 2007, it is more than 20%. Today
India is the world's fastest growing cellular phone market. For the past six
months around 7 mn telecom subscribers are being added every month. The total
number of subscribers as on September 2007 was 248.66 mn, and the CAGR was
approximately 45%. Mobile subscribers are more than 209 mn. The growth of fixed
lines is almost static or rather toward a marginal decline. Despite the steep
growth, most of the development has taken place in urban areas. While urban
teledensity, as on August 2007, is around 55%, the rural teledensity is around
7%. The total number of fixed and mobile telephones in the rural area is just
49.67 mn as against 175.34 mn in the urban area (June 2007). The low teledensity
in the rural area is a concern of all members of the SAARC region.

The telecom industry is capital intensive and the cost of provision of
telecom facility in the rural area further increases as compared to urban area,
due to the vast spread of population over large geographical areas and difficult
terrain along with comparatively low rate of return. The Indian government is
aware of this aspect and in order to encourage the telecom penetration in rural
areas, a number of schemes were worked out from time to time. In 1980, the
Hexagon policy was defined by dividing the total country in to hexagons of 5 km
numbering approximately 49,000 and it was planned to provide at least one
telephone in each hexagon. Roughly 37,000 hexagons were covered by March
31,1990. The policy was subsequently revised in 1991 to provide one telephone in
each Gram Panchayat to further increase telephone penetration. Approximately 0.2
mn Gram Panchayats were identified for provision of telephones. Other schemes
were also launched like the revenue village policy to cover all the villages up
to June 2007.

A vegetable vendor in a rural place, excited about the new telecom revolution

Though the government took various initiatives to increase the rural
penetration and to make available telecom services to the rural masses, there
have been impediments and the success rate was limited. The major concern was
huge capital investment with less remunerative returns. Therefore, in the year
2002, the government announced the Universal Service Obligation (USO) Policy
under which telecom service providers (except pure value added service
providers) were asked to contribute 5% of their adjusted gross revenue (AGR)
toward this fund. This fund has been set up to provide required resources for
development of telecom services in rural and far-flung areas. The USO Fund
constitution is so defined that it will neither lapse nor can it be used for
other purposes, to ensure that resources generated are used for development in
telecom, in rural areas only.

Initiating Growth

Initially, the USO Fund was expected to support only basic telephone
service, ie, wireline telephony. While the USO fund was used to provide
financial support for provision of telecom services in rural areas, there have
been problems. Different rural areas were allocated to different telecom service
providers for provision of telecom services based on the bidding and subsidy was
given to such service providers. Many service providers were selected for
providing rural telephones in allocated areas, but were not able to provide
telephone connections in the specified timeframe, which seriously hampered the
growth. The lack of competition, poor quality of telecom services, very low use
and virtually no provision of new value added services forced the government to
work out an alternate plan to improve penetration of telecom services in rural
areas. Various options were analyzed and it was found that provisioning wireline
services was not only very costly but also difficult to provide. It then
preferred options in mobile service. Subsidy for the provision of infrastructure
will be required to encourage service providers to provide even mobile services
in rural areas. Therefore, in 2006, it was decided to widen the scope of USO
Fund to cover mobile telephone and broadband services also.

It was initiated to identify the areas to be provided with telecom services
through mobile networks. Eighty-one clusters across the country have been
identified to support the installation of approximately 8,000 towers with
financial assistance from the USO fund. Three service providers have been
identified to share these towers and provide mobile telephone services in rural
areas.

Going Rural

Apart from government initiatives, increasing competition, higher
teledensity and reducing ARPU in urban areas, is taking service providers to
rural areas as part of their business model. It is a welcome step. In order to
further encourage operators, a favorable regulatory environment has been
created. TRAI has recommended incentives to encourage tower sharing between
operators, provision of support to use non-conventional energy sources and to
facilitating sharing of backhaul from Base Transmitting Station (BTS) to Base
Switching Center (BSC). It is expected that these initiatives will be very
useful and most of the new developments will now come from rural areas. This
will not only empower rural masses but will have very positive impact on overall
development and economic stability. However, availability of stable power supply
is going to be a major problem. Service providers will have to think of
alternate source of power supply such as solar power, wind power or biogas fuel
for their telecom network. In addition, facility will have to be provided for
charging of mobile handsets.

Penetration of broadband is another area of concern. We have approximately
2.64 mn broadband subscribers at present. While most of these broadband
subscribers are in urban areas, efforts are being made to increase broadband
penetration in rural areas as well. Proposal to utilise USO fund for increasing
broadband penetration is under consideration by the government. There is a
proposal for one lakh community service centers (CSC) to be created by March
2008, out of which approximately 20,000 CSCs will be provided using ADSL
technology by the incumbent operator, ie, BSNL. About 1,000 blocks will be
covered by December 2007 and 5,000 blocks by June 2008 using wireless broadband
technologies. The rest are to be finalized by the USO Group.

Accelerating Broadband Usage

Covering vast rural areas through broadband can be accelerated using
wireless broadband services. However, there are limitations. With services like
3G and WiMax, affordability is an issue. Customer premise equipments are costly
and not within the reach of the masses. Even making broadband available in rural
areas may not generate much interest unless steps are taken to develop content
useful to the rural population such as e-health, e-education, e-banking, and
e-trading.

Further, India has twenty-two regional languages and therefore, availability
of content in regional languages becomes another important issue. The present
cost of personal computers and laptop is high and it works as a deterrent for
the fast growth of broadband. While a number of companies have come up with low
cost PC to access the Internet and other applications, availability and
penetration of such devices in the market is low and needs encouragement.

The high emphasis of telecom development in rural areas, competition, and
technology utility will definitely bring positive results. However, it will
require initial support from the USO fund for creation of infrastructure and
meeting high operational cost. Light touch regulations with special emphasis on
regulatory forbearance will be useful. Initial ARPU from rural areas is expected
to be low but it will pick up with availability of more and more telephones and
development of new value added applications. The compounded impact of growth of
telecom in rural and far-flung areas will be very positive and we all will have
to work toward providing better quality telecom services in villages. This will
not only ensure benefits of technology to the common masses, but will also help
in improving their economic condition ultimately resulting in the overall
economic growth of the country.

RN Prabhakar

(Excerpts have been taken from TRAI member RN Prabhakar's keynote speech at
VOICE&DATA's 6th CEO Conclave held in Kathmandu)