PPP route to increase broadband penetration - A viable route for financing rural telecom projects

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PPP route to increase broadband penetration - A viable route for financing rural telecom projects

March 15, 2010

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With the telecom subscriber base close to 600 million, and with 10 to 15 million mobile subscribers being added every month, India represents a huge telecom opportunity. At the other end of the spectrum is broadband, which has a subscriber base of a little over 8 million, and rural connectivity, with a teledensity of approximately 19 per cent vis-a - vis 80 per cent in the urban areas. While some progress has been made in the area of rural mobile connectivity, broadband and internet penetration remain very low.

One of the ways being considered to fix these issues and to increase broadband penetration is the public-private partnership (PPP) mode, which has been very successful in the road sector. In the telecom sector, PPP has gained traction since 2006 with the government prioritising rural connectivity and with operators increasingly moving from the saturated urban markets to tap the potential of the rural areas.

Several players have launched internet and broadband connectivity projects in villages. Wireless service providers are setting up towers and other infrastructure to explore and develop the rural telecom market. The government is encouraging these initiatives and in many cases, providing the requisite finances for them. Large-scale government intervention is required for rural connectivity and is being provided through the Universal Service Obligation (USO) Fund, set up in 2004 for this purpose. This is because providing connectivity to these regions is not financially viable since the cost of setting up telecom infrastructure in these regions far exceeds the revenues they yield, given the low disposable income of rural users.

The government has joined hands with the corporate sector to launch various information and communication technology (ICT) initiatives in the rural areas. The PPP model has emerged as an important working model for these projects. Currently, there are many players involved in rural broadband projects across India. Service providers like Bharat Sanchar Nigam Limited (BSNL), Reliance Communications and Bharti Airtel, and telecom vendors such as Qualcomm, Motorola, Nokia and Ericsson, along with IT companies such as Microsoft and Intel, are all experimenting with grass roots ICT initiatives.

There is no one single PPP model being used in the sector. For instance, towards the beginning of this year, the USO Fund developed a scheme to extend financial support for providing wireline broadband connectivity in the rural regions on a build-operate-own (BOO) model. Meanwhile, Gujarat State Wide Area Network (GSWAN), a successful e-governance project commissioned by the Gujarat government, was implemented on a buildown-operate-transfer (BOOT) basis.

At the state level, PPP projects are currently being implemented in states such as Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Tamil Nadu, Punjab and West Bengal.

Some of the projects being implemented on a PPP basis include initiatives under the national e-governance plan such as the setting up of common service centres (Rs 100 billion) and SWAN (Rs 33.34 billion) projects. These contracts are primarily awarded by the Department of Information Technology (DIT) (for e-governance projects), along with the respective state governments and the USO Fund of the Department of Telecommunications.

However, the pace of adoption of this model has only increased in the past few years with rural connectivity becoming a key focus area. Prior to that, growth in the telecom sector, driven primarily by the wireless segment, took place largely due to private operators with the role of the government being restricted to policy and regulation.

SWAN projects
The different agencies involved in the government's SWAN projects include DIT, the respective state IT departments, consultants, implementing agencies and third-party monitoring agencies. In the case of a PPP model being adopted for SWAN, an appropriate agency is selected through a suitable competitive process for outsourcing establishment, operation and maintenance of the network.

The consultancy cost for undertaking a technical feasibility study, advising on the most appropriate PPP model, preparation of expressions of interest and requests for proposal (RfPs), service level agreements (SLAs), etc. and managing the bid process for PPPs is provided as 100 per cent grant by DIT to the agency designated by the states to undertake the selection of the consultant.

GSWAN project

One of the more successful examples of PPP, GSWAN is the first state-owned, IP-based, multi-services (voice, video, data) wide area network connecting the administration up to the taluka level at a cost of approximately Rs 300 million. A government-to-government (G2G) project of the Gujarat government, GSWAN's development was undertaken with the objective of establishing a reliable horizontal and vertical communication network within the state administration, besides strengthening the government's disaster management capacity.The added objective behind the move was the achievement of the e-governance commitment by bringing governance closer to the population at large.

The project, commissioned by the Gujarat government in December 2001, has been developed using the PPP model on a BOOT basis, with a concession period of eight years and has connected government offices at the state secretariat (state centres [SCs]) at Gandhinagar, district headquarters (district centres [DCs])and taluka headquarters (taluka centres [TCs]). The network consists of one SC, 25 DCs (including a super DC at Ahmedabad) and 230 TCs. GSWAN has connected about 560 offices in the network so far and BSNL's existing capacity has been used for connectivity.

The BOOT operator would provide the equipment at the network nodes and ensure operations according to a specified SLA. The Gujarat government would provide all the required sites. The BOOT operator could augment its revenues through information kiosks for citizens, leveraging content from the Gujarat government.

Bidders were required to bid for a fixed quarterly revenue by SCs, DCs and TCs for the eight-year period. The DIT, Government of Gujarat, was the coordinating agency for the bid preparation and evaluation while Telecom Consultants India Limited (TCIL) was the bid consultant responsible for monitoring the service levels. The project was delayed, initially at the tendering stage due to clearance issues from the Gujarat Infrastructure Development Board. The earthquake delayed the award of the bid, which finally took place in March 2001. The final bids for the project were received in March 2001. The project was awarded to a consortium of Gujarat Online Private Limited and United Telecom Limited (UTL), which won the bid at Rs 20 million per quarter.

GSWAN connects districts/talukas with state headquarters at speeds of 2 Mbps up to the district level and 64 kbps up to the taluka level. The network is capable of handling high volume, high speed data and video conferencing. Satellite interconnect with the GSWAN hub has made all services of the network easily available in the state through portable VSAT terminals. In addition, the use of telephony has helped in lowering the expenditure incurred on telephone services.

The GSWAN project has helped in the successful implementation of several other e-governance initiatives in the state including value-added tax information system, land record information system and record of rights at villages, Gujarat ration card computerisation and health management and information systems. Moreover, due to the availability of GSWAN, all these projects were rolled out within a short time span of three to nine months and e-governance applications were made operational at the districtand block-level offices of the revenue department, the health department and the Commissioner of Commercial Taxes.

Andhra Pradesh SWAN

The Andhra Pradesh SWAN (APSWAN), conceived as early as 1999, links the state capital with 23 district headquarters and two major cities, as well as the state secretariat and all district collectorates with 2 Mbps fibre optic lines. BSNL had provided the dedicated line at no cost initially as this was the first project of its kind under a state government. In the second phase, the districts were linked with the 1,124 mandal offices. Last mile connectivity was provided by wireless in local loop.

APSWAN was initially implemented on a BOO framework by United Telecom Limited for five years, with the government having the option for equity participation at the end of five years.

Recently, the Andhra Pradesh government awarded the SWAN project on a BOOT basis to TCS. 3Com Corporation is in partnership with Tata Consultancy Services and has therefore been selected for the APSWAN project too. According to the deal, 3Com will provide high-end enterprise switching routing and security solutions for the project which will connect the 23 district offices in the state.

The BOOT operator will derive its revenues through information kiosks, leveraging content from the state government.

Applications that cover transport, health care, education, etc. will operate on this network backbone, which will be rolled out within one year.

Future scenario
In August 2008, the Indian government announced a $2 billion PPP initiative to provide broadband and internet connectivity in the rural areas. Of this, approximately $1.5 billion would be generated from the private sector and the balance would be funded from government sources.

However, several issues need to be ironed out. These include the right pricing, which should take into consideration market competition and management control, both strategic and operational.

These issues notwithstanding, there are significant opportunities in telecommunication. PPPs have generated allround interest in the private sector, which is expected to grow as more and more PPP projects get off the ground and play a key role in the growth of the industry.