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Slow Progress - Need to accelerate pace of rural infrastructure rollout

February 15, 2009



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With the urban telecom market fast saturating, operators realise the need to turn to the rural areas to achieve the next level of growth. However, not much has been done to exploit this untapped potential. Telecom infrastructure in the rural areas is way below expected levels, in spite of the Universal Service Obligation (USO) Fund initiating a project to set up 19,000 towers in these areas.

The beginning was promising. Operators responded enthusiastically, placing bids as low as Re 0 for the first phase of the USO Fund's rural rollout project, which envisaged subsidising the construction of 7,871 towers. But the enthusiasm soon subsided. And operators managed to set up less than 25 per cent of the stipulated towers till September 2008, according to the Telecom Regulatory Authority of India (TRAI).

There were several reasons for the slow progress. These included the increase in steel prices which constitute more than 80 per cent of tower costs, heightened threats from Naxalites, poor weather and tough terrain.

Meanwhile, the second phase of the project, which involves setting up 11,000 towers, has been something of a nonstarter. The Department of Telecommunications (DoT), which invited expressions of interest from infrastructure companies in August 2008, had to extend the deadline to early 2009 due to poor response.

Clearly, rural telecom infrastructure needs to be urgently ramped up.According to TRAI, there are currently 106,518 rural base transceiver stations, of which around 29,723 are shared by more than one operator. Even after taking into account the installation of mobile towers targeted under Phases I and II of the USO Fund project (assuming two operators share a tower), an additional 11,250 towers will still be required in the next two years if the industry is to achieve its target of adding 90-100 million rural subscribers.

In this scenario, tower sharing is an absolute must. As TRAI points out, "While a significant number of cell sites are being shared by competing operators across the country, this is mainly in urban areas; in rural areas, sharing of infrastructure is yet to be attained at a significant level."

Industry initiatives

In its latest study paper, aimed to tackle the problem of inadequate rural telecom infrastructure, TRAI has advocated that mobile towers should be designed to have the capacity to accommodate at least three service providers in order to be eligible for subsidy under the proposed licence.

Meanwhile, the Confederation of Indian Industry (CII), in a recent workshop, has come up with relevant suggestions for the government to expand rural telecom reach. The highlights of the CII workshop are as follows:

  • DoT's engineering bodies can be mandated to work towards standardising tower construction and reduce the cost of service provisioning.
  • There should be an institutionalised process for obtaining approvals for tower construction through a central body in order to avoid needless delays.
  • Telecom towers should be treated as public utility service and power tariffs for these should be in the industrial category.
  • Currently, power tariffs for telecom towers are based on the commercial category and are hence, much higher.
  • Introduce fuel subsidies (through the USO Fund) for telecom infrastructure providers in rural areas until power becomes available at industrial tariffs.
  • The telecom ministry should subsidise the capital expenditure of investments in renewable energy to bring down the payback period to two years. This is similar to the promotions being done by the Ministry of New and Renewable Energy in association with the Indian Renewable Energy Development Agency.
  • Telecom operators typically lease the rooftop on the land site, which is subject to taxes by different municipal and panchayat bodies. It is important that the industry either receives a waiver of such charges or that these are standardised.
  • The telecom ministry should offer import duty exemptions on any kind of telecom equipment for rural deployment as well as income tax benefits under Section 80-IA of the Income Tax Act.

    In sum, sharing of towers is one part of the solution to extend rural telecom reach; setting up infrastructure is the other. Incentives such as those suggested by the CII could indeed go a long way in encouraging operators to step up their rural rollout.


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