Indian government plans to fund Rural broadband connectivity through USO fund

The broadband penetration in India has not been upto the expectation. The rural broadband penetration is even worse and hence in the Budget for 2011-12, Finance Minister Pranab Mukherjee has finalised a plan to provide Rural Broadband Connectivity to all 2,50,000 Panchayats in the country in three years. As per Economic Times news the government of India will soon invite bids from telecom firms to provide broadband services in rural areas of the country under which the service providers get subsidy from the Universal Service Obligation (USO) Fund. Department of Telecom (DoT) will come out with tender for rural wireless broadband through USO Fund by the end of this month and is likely to cover 60,000 without giving the timeframe to achieve the target. 

USO Funds was set-up in 2002 in order to provide mobile services and broadband connectivity in rural and remote areas of the country. As on December 31, 2010, the fund has a total of Rs 13,789.28 crore. 

Under the 'Rural Wireline Broadband' scheme of USOF, a total of 2,61,413 broadband connections and 2,506 kiosks have been provided till January 31, 2011 in the rural and remote areas of the country against a target of 8,88,832 connections and 28,762 kiosks by 2014.  Last week, President Pratibha Patil had launched DoT-USOF's pilot project Sanchar Shakti, which aims to provide useful information to women, about health, social issues and government schemes over their mobile phones. The scheme, which is funded by DoT's USOF, is for mobile value-added services and information and communication technologies (ICT) related livelihood skills for Women's Self Help Groups. As per the Department of Telecommunications (DoT), rural broadband connectivity will cost around Rs 18,000 crore.

Growth in Indian rural tele-density not an easy task - says E & Y !

Research firm Ernst & Young (E&Y) has said while the government and private operators continue to push for rural telephony, its proliferation in the hinterland will be faced with many challenges. “The cost of delivery is likely to be high in view of the specifics of the Indian reality. Hence, connecting rural India would mean incurring a much higher cost per subscriber to capture low ARPU subscribers,” said E&Y telecom industry practice leader Prashant Singhal.

Telecom operators may be banking big time on the untapped rural markets for the next wave of growth, but the number of connections in hinterlands will not increase beyond 150 million by 2011, according to a study. “Mobile connections in rural geographies will be constrained by coverage of network infrastructure and affordability of handsets which will limit consumption,” London-based Centre for Telecoms Research (CTR) has said. The government has set a target of 500 million cellular connections by 2010 and DoT expects a fifth of these will be in rural areas. While operators are rolling out extremely low-cost handsets, industry analysts feel driving usage in rural areas will not be easy. Network management itself remains a challenge in the difficult terrains and this is topped with erratic power supply leading to high genset costs. The main stumbling block in rural areas is the high cost of building infrastructure versus low revenue opportunity. However, government initiatives like the Universal Service Obligation fund (USOF), shared infrastructure and managed network services would help to address these issues. All operators contribute 5% of their revenues to the USOF, used to provide rural telephony. Recently, the government has finalised contracts for setting up 8,000 towers in rural India with support from USOF. This is expected to help the government in providing an additional 50m connections in rural India. Currently, the rural teledensity is nearly 2% while urban teledensity is over 40%. This hyper growth in urban areas will also make things difficult for operators going forward. The CTR study expects urban populations of India to reach high levels of mobile phone saturation in the next five years, to the extent where many phone users will have two or more handset connections. A large portion of this growth will arise from pre-paid connections, driven by the increasing affordability of handsets and tariffs amongst India’s lower middle classes. “The phenomenal growth in the Indian mobile phone market has largely been driven by urban consumption. We expect this to continue with urban geographies achieving saturation levels similar to current Western European markets in the next five years,” said CTR research director Raj Modi.

India's Reliance communication has big rural expansion plans

Reliance Communications (Rcom) will set up over 8,900 base terminal stations, which will provide telecom services to over two lakh villages, in the next one year under the Universal Service Obligation (USO) programme. The project comprises of commissioning 8982 base terminal stations, which will provide telecom services in 2,34,000 villages, which do not have any telecom connectivity at present. The announcement of the 'World's Largest and Fastest Rural Infrastructure' project comes a day after signing of MoU for USO programme with the Department of Telecommunication (DoT). The company aims to launch the telecom services within two months, after provisioning of passive infrastructure in these locations. It has also formed a special task force for the National Rural Rollout. The National Rural Marketing Team would be responsible for the completing this task. Last year, RCom had established its telecom network in over 40,000 villages under the USO fund and added close to 7.5 lakh new subscribers in these areas. The company also plans to enhance its network coverage to 25,000 towns and 4.5 lakh villages by March 2008 and has earmarked a capex of 2.5 billion dollars (Rs 11,000 crore) for its expansion plans during this fiscal.

USO bid for setting rural telecom towers

The Department of Telecom has received bids from 22 stand-alone infrastructure providers and all telecom operators for the setting up 8,000 telecom towers in rural India at an estimated cost of over Rs 3,000 crore. The government will provide the capital to set up these towers from the Universal Service Obligation Fund (USOF) through a bidding process. All Telecom companies pay 5% of their adjusted gross revenues towards the USOF, which is used for funding telecom infrastructure in rural India. Last year, the government had allocated Rs 1,500 crore towards the USOF in the budget. As per the Economic Survey released on Tuesday, off the Rs 10,787 crore collected towards USO fund till March 2006, only Rs 4,232 crore has been disbursed so far.