The primary vision of Digital India is the provision of digital infrastructure, including high speed internet, as a utility to every citizen. While internet penetration in India’s urban and semi-urban areas has improved significantly in the past few years, the rural population is yet to gain access to broadband. The National Optical Fibre Network (NOFN) project, now renamed BharatNet, is the government’s flagship project for providing broadband connectivity to rural areas. It envisages connecting 250,000 gram panchayats with optical fibre cable to provide affordable broadband connectivity of 2 Mbps to 20 Mbps by December 2016. The project is being implemented by Bharat Broadband Network Limited (BBNL), while the cable is being laid by Bharat Sanchar Nigam Limited, RailTel and Power Grid Corporation of India Limited.
In terms of physical progress, however, the implementation of the project has been tardy, with the achievement falling well short of the targets. Significant cost revisions and delays in procuring clearances and equipment have severely affected its development, and only about 3,384 gram panchayats have been connected (up to November 2015). In order to overcome the challenges being faced, the government has revamped the project, giving it a broader scope and increasing the involvement of the private sector.
tele.net takes stock of the government’s strategies in this regard, including the Telecom Regulatory Authority of India’s (TRAI) suggestions in the “Consultation Paper on Implementation Model for BharatNet”…
Suggestions from the committee
The NOFN report submitted by the Department of Telecommunications (DoT) committee in March 2015 has outlined a multiple-model approach that spreads out risks and builds on available capacities. To encourage the project’s speedy implementation, it has suggested three approaches: by central public sector undertakings (CPSUs), state governments, and the private sector.
CPSU-led model: The CPSU would be required to complete the entire network segment on a turnkey basis. Following the network’s commissioning, the necessary monitoring operations would be carried out through a centralised Network Operation Centre facility under the management and control of BBNL. The choice of states for the CPSU-led model is based on three grounds:
- Where the private sector may either seek a premium on projected costs in the bidding process or be unwilling to implement the project due to the law and order situation in a state. Such states include Chhattisgarh, Jharkhand, Jammu & Kashmir, Nagaland and Manipur.
- Where the geographical terrain requires alternatives to optical fibre media to be adopted across a significant part, or the laying of aerial optical fibre using electricity transmission infrastructure needs to be explored. Such states include Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Arunachal Pradesh, Meghalaya, Mizoram, Tripura, and the union territories of the Andaman & Nicobar Islands, Lakshadweep, and Daman & Diu.
- Where CPSUs have completed a significant part of the work in a state in the first phase of the project, which is currently under implementation. These states include Kerala, Karnataka, Haryana and Punjab.
The key advantage of this model is the state machinery’s indirect support to CPSUs, which would be useful in places where law and order issues are likely to inhibit project implementation if the private sector model is adopted. CPSUs will be in a better position to handle deviations from the buried optical fibre architecture, especially where radio, satellite media or aerial optical fibre riding on other infrastructure is to be attempted. The incentives and disincentives built into the project structure would bring about the required accountability and ownership in implementation, a factor that is missing in the present design. Since CPSUs have to comply with the requirements of the competitive procurement and contracting process, the risk of project cost escalation can be shifted away from them, leaving the incentive structure clearly oriented towards timely execution through better project management.
State government-led model: In this model, the state government would design the network, customise it according to its requirements, and implement, commission and operate it through a state special purpose vehicle. State governments are the principal carriers of government services and incentivising them for participating in the BharatNet project could lead to better delivery of government services. Moreover, coordination with state government agencies can be best managed by states. The main difficulty in this model is the lack of project management capacities to technically design and manage its complexities.
Private sector-led model: In this model, bids are invited from a consortium on a build and maintain basis with the lead bidder for single-window clearance. The consortium can include an engineering, procurement and construction services provider; a network original equipment manufacturer; system integrator; and managed services provider. The main advantage of this model is that the package approach optimises network roll-outs by ensuring parallel execution across multiple packages through different implementation partners. The fixed capex will provide an incentive for the implementation partner to optimise the network’s design architecture and achieve the necessary service level agreements (SLAs). Since the package is structured on a turnkey basis, the complexities of management across different agencies will be handled by the implementation partner. This will enable BBNL to concentrate on monitoring projects, ensuring deliverables and enforcing SLAs. However, as multiple packages will be proposed, BBNL will be required to manage, monitor and enforce several bid processes. The supplied inventory will vary significantly across packages, which would add further complexity to the project implementation process.
Need for an alternative model
Although the DoT committee conducted extensive reviews of the NOFN project, it was noted that the implementation risks could persist. According to TRAI, the project’s multilayered structure would continue to exist in the suggested models, which enunciate that the network is to be built, owned and operated by different parties while services will be provided by some other operator. Therefore, there would be no alignment of stakeholder interest in the execution of the whole project. The agency laying fibre would have no incentive to complete this in time as several external variables, such as the provisioning of right of way, would affect implementation. Moreover, the implementation entity will neither provide the service directly nor market it. Therefore, it will not have any incentive to carry out quality construction, which may give rise to further long-term risks. It will also be challenging to undertake supervision and monitoring at a large number of locations by a single agency or third parties. Thus, the need of the hour is to create scalable, commercially feasible business models while keeping in mind the speed and quality of implementation.
According to TRAI, the advantages offered by the build-own-operate-transfer (BOOT) model can help deliver technically and economically efficient infrastructure. This model is a form of concession in which a public authority makes an agreement with a private company (concessionaire) to design, build, own and operate infrastructure, along with the right to earn income from the facility for a pre-determined period of time (with a concession period of approximately 15-25 years), later transferring it back into public ownership. The BOOT model can remedy the lack of dynamism in traditional public service delivery which could result from the strained state of public resources. It will also enable the inflow of private financing for expanding public services. Private sector involvement encourages innovation, flexibility, better planning and improved incentives for delivering public services.
In India, several infrastructure projects have been successfully implemented through the BOOT model. These include the Bangalore International Airport, which has been developed by Bangalore International Airport Limited as a greenfield project. The concession agreement and shareholder agreement under the project were used to distribute the risk among partners, based on their ability.
The key advantage of this model is that it enables the public and private sectors to synergise their strengths in building and developing infrastructure to their mutual advantage. It reduces the burden of infrastructure development on the public budget, and also mitigates risks by involving multiple agencies, apart from encouraging private investment and the transfer of technology and know-how. For the public sector, there is improvement in terms of programme performance, cost efficiencies, service provision and the allocation of risks and responsibilities. The private sector will also get an opportunity to make a reasonable profit and expand their business.
TRAI has made the following suggestions for implementing BharatNet under the BOOT model:
- The executing agency will be selected on the basis of competitive bidding for a licensed service area or state, or a combination of both.
- The executing agency will be selected on the basis of the minimum viability gap funding bidding.
- The agency will build and operate the network, and own it during the concession period.
- The agency will be entitled to the revenue earned from the sale of dark fibre or bandwidth.
- At the end of the concession period, the infrastructure will be transferred to the government.
The way forward
In order to assess the feasibility of this model, TRAI has posed several questions to key stakeholders in the consultation paper. Before giving its recommendations on the matter, the regulator wants to analyse whether the BOOT strategy would be more suitable in terms of cost, execution and quality of construction for the timely completion of BharatNet. Given the recurring delays in this project, it is imperative to involve the private sector as well as states. While the BOOT model will overcome several risks in the models suggested by the DoT committee, its challenges are yet to be identified. Considering the possible social impact and economic advantages of BharatNet, adopting the right implementation strategy is of utmost importance. Going forward, TRAI’s final recommendations on the matter and their speedy deployment will provide a much-awaited boost to BharatNet.