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Revisiting Strategies: Lower levies proposed for USO Fund to push rural telecom growth

July 13, 2015

During the past decade, the Indian telecom market witnessed significant growth in the wireless subscriber base in urban areas on account of low tariffs and ubiquitous network coverage. By contrast, the growth in the rural telecom market was subdued. As of March 31, 2015, rural teledensity in the wireless segment stood at 47.78 per cent, much lower than the urban teledensity of 143.08 per cent. It is evident that a large section of the rural population remains unserved.

In an endeavour to reduce the disparity between rural and urban areas and improve telecom infrastructure, the government has been implementing several projects that have a rural focus. However, their progress has been rather slow as implementing agencies have missed several deadlines. The slow disbursal of funds, delays in procuring key equipment and the lack of participation from private players are some other major issues that have been impeding project execution.

These projects are all being funded by the Universal Service Obligation (USO) Fund, which comprises levies collected from telecom service providers. At present, service providers contribute about 5 per cent of their adjusted gross revenue (AGR) to the USO Fund. Although the main objective of setting up the fund was to subsidise network roll-outs in rural regions, not much progress has been made in terms of network deployment. The cumulative balance of the USOF was about Rs 391 billion as of March 2015.

Due to its non-utilisation, the industry and the Telecom Regulatory Authority of India (TRAI) have requested the government to gradually reduce the levy on telecom service providers. They have stated that relieving operators from paying high fees would ensure the availability of more funds, which in turn would facilitate the financing of rural network expansion plans. TRAI has recommended reducing the USO Fund levy from 5 per cent of the AGR to 3 per cent.

tele.net takes a look at the various projects being undertaken by the government in rural areas…


One of the government’s most ambitious projects for rural regions is BharatNet (formerly known as the National Optical Fibre Network [NOFN] project), which aims to provide broadband connectivity by rolling out 700,000 route km of optical fibre cable (OFC) in 250,000 gram panchayats. It is being implemented as part of the Digital India initiative. Bharat Broadband Network Limited is the project’s nodal implementing agency, while Bharat Sanchar Nigam Limited (BSNL), Powergrid and RailTel are the executors. The three companies will be adding incremental OFC to their existing networks, with all operators having access to the network on a non-discriminatory basis. The government intends to use the broadband network to deliver educational, governance and health care services.

However, despite several revisions in the project’s completion dates, not even 50 per cent has been implemented so far. As of March 2015, only 20,000 gram panchayatas had been connected through broadband, as against the target of 50,000 gram panchayats. The central government is now planning to restructure the project and has established a committee to recommend measures for its timely execution.

The committee has suggested changes in the project’s implementation, along with higher investments. It has proposed that broadband connections should have an uptime of 99.99 per cent under BharatNet as compared to the 96 per cent envisioned under the NOFN. Consequently, a broadband network downtime of nine hours would be permitted as against the 350 hours under the NOFN. The committee has also suggested a threefold investment increase for the project to make it Rs 728 billion from the previous Rs 200 billion. In addition, it has advocated increased participation from private companies, as well as the use of satellites and spectrum for providing broadband connectivity. The committee is of the view that broadband services with downstream speeds of 2-20 Mbps should be made available at around Rs 150 per month in states that have low GDPs and Rs 250 per month in states that are economically advanced.

The committee also expects more state government involvement in the project. States can choose from three models – central public sector undertaking, special purpose vehicle (SPV) or private participation – for providing broadband connectivity to gram panchayats. Taking this into account, seven states, including Andhra Pradesh, Tamil Nadu and Madhya Pradesh, have already proposed to implement the project through either state-run or SPV-run models. However, the business model to be implemented by the state governments should follow certain standards. Meanwhile, the existing NOFN architecture will have to be migrated to the new models.

LWE areas

Another important project, entailing a cost of more than Rs 30 billion, is being undertaken by the government to improve telecom connectivity in areas affected by left-wing extremism (LWE). To this end, BSNL is deploying telecom towers at 2,199 locations across the states of Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Maharashtra, Madhya Pradesh, Odisha, Telangana, Uttar Pradesh and West Bengal. The project is scheduled to be completed by December 2015, with the new infrastructure, which is expected to ensure effective communication among the concerned security personnel as well as among customers in Naxal-affected regions.

Rural broadband

BSNL is implementing another project in rural regions that aims to provide individual customers and government institutions with 861,459 broadband connections from about 28,000 digital subscriber line access multiplexers deployed at existing rural and remote exchanges. Although this was scheduled for completion by December 2014, it is still being executed. As of January 2015, BSNL had provided 656,345 broadband connections.

North-eastern region projects

RailTel is deploying intra-state and interstate OFC networks in six states across the north-eastern region at a cost of Rs 4.5 billion. Of this, Rs 3.88 billion will be provided as USO Fund subsidy. The cable will ensure minimum and maximum broadband speeds of 2.5 Gbps and 10 Gbps respectively. RailTel will operate and maintain the OFC network till 2020 and enable access for all service providers at a minimum discount of 88 per cent on prevailing TRAI tariffs.


The rural telecom market presents a tremendous growth opportunity for service providers. However, due to the slow pace of network deployment, its potential remains untapped. Although the government’s move to expedite broadband network roll-outs under BharatNet is a step in the right direction, its execution within the proposed timeline will be imperative for ensuring benefits to rural customers. The government also needs to lower the USO Fund levy on telecom operators to ensure higher investments in rural areas. It remains to be seen whether it can fulfil its promise of bridging the gap between the urban and rural telecom markets.


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