Universal Service Obligation in India

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Universal Service Obligation in India

• Telecom Regulatory Authority of India
• 1st March 2005

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USO in India

• This presentation covers-
• Brief Background and current Status of telecom
  services in India
• USO Regime in India
• Way Forward
• Obligation or Opportunity
• Good practises and lessons learned from India
• Conclusion

3
Brief Background and current Status of telecom
services in India
As on 31.01.2005 Size 3287000 Sq.
Kms. Population 1.027
Billion Number of Fixed Lines 45 Million Number
of Mobile 50 Million Teledensity
8.8 (Fixed Mobile) Number of
Internet 5 Million Number of rural lines
12.3 Million Number of PCOs 2 Million
4
Phases of Policy reforms- The Indian Story at a
Glance
First phase of reform
Second phase of reform
Third phase of reform
Converged framework
Manufacturing Sector Value Added Services
NTP 1994 Duopoly / Oligopoly in Services
sector Bidding for Licenses Independent
regulator
NTP 1999 Open competition Revenue
sharing Separation of operator and policy
maker Privatisation of incumbent CPP USO fund

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

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Background

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

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

• Gram Panchayat Telephone

Long Distance Public Telephone
7
Objectives of NTP99 in Section 6 (Universal
Service obligation)

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

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Major Targets in NTP99

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

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Objectives of NTP99 (Universal Service
obligation)

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

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TRAI Act 1997 (as amended in 2000)

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

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USO Regime in India

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

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USO Regime in India (Contd)

• Indian Telegraph Rules, 1951 amended vide
  notification dated 26th March, 2004 to include
  Universal Service Obligation Fund.
• It is a non lapsable fund.
• Contributions from telecom Service Providers
• Rs 16.53 billion (2002-03) and Rs. 21.43 billion
  (2003-04)
• Rs. 6 billion disbursed.
• Current Financial Year
• Requirement Rs. 27 billion.
• Contribution Rs. 30 billion (estimated)
• Disbursement Rs. 12 billion

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USO Regime in India (contd) - Functions of
Administrator

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

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USO Regime in India (contd)

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

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USO Regime in India (contd) - Scope of USO

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

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USO Regime in India (contd) - Scope of USO

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

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USO Regime in India (contd)

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

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USO Regime in India (contd)

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

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USO Regime in India (contd)

• Initially, the framework of USO policy included
  only Universal Access to telephony, both in rural
  and urban areas.
• Social objectives were encompassed not only in
  the USO Policy.
• Over time, the scope of Universal Access became
  broader and the objective has included internet
  or data service as well.
• Under NTP 1999, Universal Service was extended
  beyond access, and included also extension of the
  subscriber base.
• Provision of reliable media to all exchanges, has
  put India in a very strong position to achieve
  the more recent USO objectives, including
  Broadband.

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USO Regime in India (contd)Mechanism used to
encourage rural connectivity

• A mix of policies has been followed in India over
  time.
• Objective of USO was included in the terms and
  conditions of the Fixed Service License
• Improved affordability was achieved through
  tariffs for fixed line service in rural areas
  always being lower than for urban areas.
• Earlier strategy of achieving USO or social
  objectives was not successful.
• Compared to a total of about 607 thousand
  villages, Village Public Telephones(VPTs) have
  been installed in about 520 thousand villages. Of
  these BSNL has provided about 511 thousand, and
  the six private operators have provided 9,171.

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USO Regime in India (contd)Mechanism used to
encourage rural connectivity

• Mechanism for promoting USO has changed over
  time.
• USO policy being implemented in practice has
  prioritized the USO items covered under NTP 1999.
  
• Financial constraint also meant that the initial
  coverage of support to telephone on demand was
  limited to the areas with the most pressing
  requirement.
• Scope of USF policy being implemented has evolved
  even within the short period of its existence.

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USO Regime in India (contd)Mechanism used to
encourage rural connectivity

• USO policy being implemented has extended the
  scope beyond the statement in NTP 1999.
• Extension of the use of USO Funds for additional
  activities is under consideration by the USF
  Administrator and the Government.
• Based on its experience, the USF Administrator
  has adjusted the components of USO support,
  implementing a number of changes to improve
  effectiveness.
• It is expected that financial viability of
  presently assisted activities will improve over
  time, reducing their need for USO support.
• Efforts to enhance the transparency of the
  actions taken by service providers to meet the
  USO objectives.
• Efforts to seek new and additional ways of
  promoting Universal Service.

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USO Regime in India (contd)Mechanism used to
encourage rural connectivity

• Process of meeting USO has involved efforts to
  develop/tap different technologies
• Most of telephony access in villages and towns is
  provided by BSNL.
• MARR Phones (81,847 VPTs, to be replaced by
  Wireless in Local Loop),
• Fixed phone by landline (238,694 VPTs),
• Satellite Phones (299 VPTs), and
• Wireless in Local Loop Phones (190,351 VPTs).
• Generally, wireless in local loop technology is
  increasingly being used by the private operators.
• 2,592 postmen carrying wireless phones to
  villages to cover 11,013 villages
• Wire line roll-out costs are significantly lower
  than wireless roll-out costs.
• .

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USO Regime in India (contd)Mechanism used to
encourage rural connectivity

• Opening up markets and taking strong steps to
  increase competition and enhance flexibility of
  operation.
• With decline in costs, USO objectives may be
  achieved through normal commercial investment,
  i.e. without any financial support.
• The countrys population covered by mobile
  network is likely to increase from the present
  20 to about 75 in two years).
• With diverse activities focusing on common or
  related objectives, steps have been initiated to
  coordinate these different efforts and to make
  them more effective and sustainable.
• .

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We can achieve the dream
We have to facilitate / encourage implementation
of operators plans
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USO Regime in India (contd)- Effectiveness of
the mechanism used

• Earlier
• USO policy used low tariffs particularly in the
  rural areas, and a mandated programme
  establishing VPTs.
• High cost of service provision, and relatively
  low tariffs and usage in rural areas meant that
  the service provider would require subsidies to
  meet the USO objectives.
• System was not successful in meeting either the
  USO objective of access or the teledensity target
  of the Government.

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USO Regime in India (contd)- Effectiveness of
the mechanism used

• With competition, the cross-subsidy to low
  access and usage tariffs provided earlier by the
  tariff structure could not be sustained
• The mandatory conditions in the License
  Agreement were also not successful
• Universal Service Obligation Fund (USF) was
  thus established
• India now has at least two highly competitive
  operators who have won different bids for USF
  support.
• In analysing the efficiency of meeting USO
  objectives, it is appropriate to treat public
  access and individual connections.

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USO Regime in India (contd)Effectiveness of the
mechanism used

• Supply rather than demand is the constraint for
  rural telephony.
• For affordable rural telephony - low price
  supplemented with reduction in policy imposed
  costs
• Demand side - lower price for the service
• Supply side - economies of scale and scope
• Technological developments facilitating
  building of economies of scale and scope
• USO is a dynamic process. Scope needs dynamic up
  gradation for
• Bridging the Digital Divide

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Yearly Rural DELs additions (in Millions)

• 2.50

• 2.00

• 1.50

• Number of Rural DEL addition (in Million)

• 1.00

• 0.50

• 0.00

• 1996-97

• 1997-98

• 1998-99

• 1999-00

• 2000-01

• 2001-02

• 2002-03

• 2003-04

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This shows that the registered demand has
remained around the same level. When service
begins in an area, anticipated demand
surfaces. It is supply of phones that has
been reduced. Policy should focus especially
on this.
Rural telecom
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This shows that gap between Urban and Rural
Teledensity is increasing
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Number of households with key consumer durable
assets
Rural India provides a substantial market
Even a lower rate of penetration in rural areas
will be a substantial addition (2.5 times than
urban) in market size.
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New Developments since 2002
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Way Forward

• Future Growth is wireless oriented.
• Lower tariff, more affordable telecom services.
• 72 Rural Households (140 million Households).
• To reduce the cost each service provider need not
  go to all rural Areas.
• - Sharing of infrastructure.
• - Roaming to the subscribers of other operators
  White Zone concept in France, Arrangement
  between Cellcom and Vodafone in Scotland.
• Concept of Rural Service Providers.

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TO INCREASE RURAL CONNECTIVITY

• A consultation paper on growth of Telecom
  services in rural areas was issued on October
  27, 2004.
• The paper has already been placed on TRAI's
  website (www.trai.gov.in).
• Based on comments received from all stakeholders
  and its own analysis TRAI is in the process of
  preparing its recommendations on the same.

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TO INCREASE RURAL CONNECTIVITY - KEY PROPOSALS

• Need to improve use of existing Assets
• 6,70,000 Route kms OFC network. Connecting
  30,000 exchanges out of which 27,000 in rural
  area. Backbone OFC is covering almost whole
  country.
• Reduction in provisioning costs
• Sharing of Central /State Govt. Infrastructure
  in rural areas.
• Provision of spectrum in non congested bands
  450 MHz Lower Spectrum charges
• Use of Wi-Fi/Wi-Max
• Improving Low cost Coverage e.g. Cellular

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TO INCREASE RURAL CONNECTIVITY - KEY PROPOSALS

• Develop content and usage
• Connectivity is not an end itself.
• Applications useful to local population to be
  developed.
• Area of Agriculture, food processing industry,
  animal husbandry, fisheries, sericulture,
  handicrafts, etc.
• Even in IT based services, rural India can
  provide service to urban India.(like BPOs)
• Governments could outsource work like
  digitisation of land records, Birth-Death
  Certificates etc.
• Niche Operators Concept under Unified
  License
• Bottom Up Approach Focus on smaller areas /
  operators compared to present policy

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Obligation or Opportunity

• The subscribers in Rural Areas not only need
  telephones but also high speed data services.
• Many success stories like Gyandoot, Bhoomi etc.
  in India.
• BSNL became the 2nd largest GSM operator even
  though he entered 7 years after 1st private
  operator in market. One of the main reason for
  this high growth is coverage in rural Areas.

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On-going rural ICT efforts

• ITC e-chaupal
• Effort driven by a company involved in
  agriculture produce.
• 4000 electronic chaupals (kiosks) in villages to
  aid grain procurement, support agriculture.
• n-Logue
• Partner with a Local Service Provider to connect
  every village in a Taluka using terrestrial
  wireless
• Village kiosks cost Rs 50,000 (No subsidy,
  possible bank loans) - Focus on education, health
  and livelihood. Operation in 40 districts, 2000
  villages
• Grant / Aid driven initiatives
• MS Swaminathan Center (in Pondicherry focussed on
  agro and fishery applications)
• Tara-haat (focus on rural enterprises)
• Akshaya (in Kerala with Government support)
• Gyaandoot (in MP with focus on e-governance)
• Rural E-seva (in east Godavari in AP with focus
  on e-governance)
• Warana ( Wired village in Maharashtra by NIC)
• For- profit initiatives
• Drishtee (in North India uses existing telecom
  infrastructure)
• Application Development initiatives
• Bhoomi (in Karnataka focused on e-governance
  program for land records)

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Experiences Lessons

• Multi-pronged approach combining various
  policies
• a)Licensing Policy
  b) Funding Policy
• c)Technology Development Policy d) Tariff
  Policy
• e) Diversified content developments for
  different applications in different languages
• Need to meet not only the basic minimum
  requirement of connectivity (access) but also to
  create conditions to reduce the digital divide.
• Periodic review of both the USO content and
  requirements of USO funds would be necessary
• Where necessary, USO should be implemented in
  phases and the services to be covered under the
  programme should be clearly prioritized

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Experiences Lessons (Contd)

• 5. Solution has to be multi-technology solution,
  depending on the cost and applicability
• 6. Indigenous technology helps in reduction of
  the cost and achieving adaptability to local
  conditions resulting in increased reliability and
  sustained interest of users
• 7. Implementation through an independent agency..
• 8. Participation of all stakeholders
• Tariff Policies to be supportive of USO programs
• Focus on increasing the utility and acceptability
  of the service to the society

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Conclusions

• Self-sustainability of rural telephony important
  and achievable
• Innovative marketing strategies necessary
• Universal Service Funding for initial support.
• Public Private partnerships can play a very
  important role in adding value to services
• O in USO stands for opportunity if services
  suitable for local rural population are made
  available at affordable price. Ultimate objective
  is to convert Universal Service Obligations to
  Universal service Opportunity

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Thank You