ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Bridging the Telecom Divide

The growth in urban telephone services in India seen since 1999 has not been matched by growth in rural telephony, leading to a widening digital divide in the country. This article discusses the factors that have contributed to the divide in telecom services and issues associated with creating and sharing a backbone network in rural areas.

Bridging the Telecom Divide

The growth in urban telephone services in India seen since 1999 has not been matched by growth in rural telephony, leading to a widening digital divide in the country. This article discusses the factors that have contributed to the divide in telecom services and issues associated with creating and sharing a backbone network

in rural areas.


nformation and communication technology (ICT)1 helps eradicate rural poverty first by networking the rural poor and ensuring their participation in public affairs. Second, ICT improves the service delivery of health, education, agricultural extension services and other public services. Third, it improves market connectivity and provides protection from the exploitation of middlemen. Fourth, ICT helps rural industries maintain a smooth flow of inputs and output. Fifth, ICT increases accountability and effectiveness of government. Lastly, ICT leads to empowerment and participation of women in economic activities.

Providing ICT facilities in rural areas is a difficult task. Lower population density and unfavourable geographic and climatic conditions do not economically support the roll out of ICT services in rural areas. Due to low educational attainment, a high illiteracy rate, low incomes of households, irregular power supply and its poor coverage, and lack of government extension services, there is lesser usage of ICT services in rural areas.

Present Status

New Telecom Policy 1999 (NTP 99) identified that availability, accessibility and affordability of telecommunication services are indispensable inputs for national development. Accordingly, it drafted a strategy for rural telephony with the Universal Service Obligation (USO) policy, making telecom services more affordable by designing a suitable tariff structure, and encouraging the participation of the private ector. In the post-NTP 99 environment, overall teledensity in India increased to 12.8 by March 2006; a growth of four and half times in six years. The average urban teledensity was over 34, while it was not even two in the rural India as on December 31, 2005.

As for the interstate differences in rural teledensities, the central, eastern and northern regions with respective rural teledensity figures of 0.71, 0.86 and 1.41 fall behind the all-India average (1.81). On the other side, the southern and western regions have rural teledensities of 3.87 and 2.34, respectively. Across states, Kerala (10.76), Himachal Pradesh

(7.07) and Punjab (5.16) have highest rural teledensities in the country. On the lower side are Chhattisgarh (0.52), Uttar Pradesh (0.55), Jharkhand (0.56) and Bihar (0.64).

As stated above, at present, there exists a huge digital divide between urban and rural areas as well as among rural areas of different states in India. Another notable feature of post-NTP growth is that mobile telephone services, which are propelling the teledensity in the country, have so far been mainly restricted to the urban areas. Lack of penetration of cellular mobile services in rural areas and nonexposure of a large percentage of rural population to the telephone services are the underlying factors of low rural teledensity. Further analysis reveals that, in order to cover thinly spread potential customers across large geographical areas, there needs to be huge investment in creating the required infrastructure. Coupled with this is the presence of a lower proportion of business and industrial units in rural areas and the perception of service providers that rural telephones are unremunerative as they are mainly used for receiving calls, resulting in low revenue per customer. Therefore, private operators, in order to maximise returns to their given resources have invested in urban areas. In view of the above situation, it is important to bring out responsible critical issues associated with the government policies of the past, and discuss the way forward.

The roll-out obligations laid down in the service licence agreements originally could not be fulfilled as private operators opted to pay penalty for non-fulfilment of these conditions. Later the unified licensing regulation opined that rural service obligations would be better met through USO and niche operators. As the niche operators policy is yet to be finalised, as of date the USO fund is the only policy instrument being used now.

Support from USO Fund

The Indian Telegraph Act defined USO as the obligation to provide access to basic telegraph services to people in rural and remote areas at affordable and reasonable prices. The support from the USO fund was equated to the net cost of access network or the last mile. The last mile was defined as the portion of the network that lay between the line card in the exchange and the customer premises equipment, which is the non-traffic sensitive part of the network. A list of six services that aim at achieving “universal access”2 and ‘‘universal service”3 objectives were identified for support.

Two critical features of the present USO strategy are: (i) support limited to cover only the non-traffic sensitive part of the network, and (ii) limiting the subsidy to only basic and fixed wireless services. In many remote villages, the telephone network was to be built for the first time in order to provide USO services. This involved huge investments in both backhaul and local loop. However, the financial support from USO, based on the recommendations of Telecom Regulatory Authority of India (TRAI), considered capital and operating expenses incurred only in the local loop. Thus, a lot of investment that took place in backhaul, including telephone switching equipment, was left uncovered. This has resulted in the selected participation of private operators in USO services. Bharat Sanchar Nigam (BSNL) too had to invest in both backhaul and access loop in many places in order to provide reliable services as stipulated by the USO agreement. The limited subsidy has resulted in the discontent of BSNL though it has participated in the bid.

As for its second critical element, only fixed wireless/wireline services are being supported and the mobile services are kept outside the USO support. This has, to some extent, contributed to the absence of cellular services in rural areas. The technical innovations that took place in the cellular mobile telecom

Economic and Political Weekly January 20, 2007 services sector have made it an effective solution for addressing rural telephony.

Affordability of Tariffs

In the post-NTP 99 period, as could be noticed from the USO achievements,4 a lot of villages have got public phones. However, the telecommunication services owing to the two-way nature of demand give rise to “network externalities”. The value of a network to a given user increases with the number of other users who have access to it. Therefore, the limited number ofpublic phones is not giving rise to network externalities in turn resulting in low usage; the question often posed by a villager is “whom am I going to call? I don’t know anyone who owns a telephone”.

It has been observed that the public telephones provided in villages under the USO policy, owing to the public nature of the equipment, are often either not in working condition or not accessible to all the people. Especially facilities kept under the custodianship of the panchayat office or panchayat board members are not serving their purpose. Public telephones provided under USO policy have found limited usage as most of them do not have the STD facility. Owing to poor literacy rates and socio-economic conditions that are prevailing in villages, telephone services have not become popular among a considerable portion of rural population.

With regard to the objective of private sector participation in developing communication facilities in rural areas, new telephone lines provided in rural areas so far are by BSNL, the public sector incumbent operator. Very little private investment has gone into rural areas leaving a huge unmet potential in rural areas for telecom services.

In view of the above issues, it is often felt that the present policy towards rural telephony needs modification. The individualistic approach of USO support adopted so far needs to be replaced by a network infrastructure expansion approach. The USO must have moving targets instead of fixed ones.

Alternative Strategy

The alternative strategy recommended by TRAI is the rollout of cellular mobile services in rural areas. For this purpose, not only does the telecom backbone network need to be constructed in rural areas but also its access to the cellular operator. The backbone consists of the conduit for carrying traffic and microwave towers and masts.

Going into details of this approach, a shift in the USO support away from the prevailing cost per line basis of selected services and towards the creation of shareable infrastructure is the financing strategy. Both costs of passive infrastructure items like real estate (land rentals and building construction) and active network components that include towers, transmission systems, power facility and backup, air conditioning, etc, are to be considered for support from the USO fund. The support is given to the service provider who is selected through bidding. The successful bidder is given an exclusivity period after which the infrastructure has to be shared with other operators. The ownership of the network thus created could be a joint ownership of the USO fund and the successful bidder. This method will help accelerate the rollout of cellular mobile services in rural areas that in turn would increase rural teledensity by competing service providers who provide choice to rural subscribers.

If we look at experiences of other countries we can find two approaches for developing the backbone of cellular mobile networks. In the US and European countries, private infrastructure companies called “tower companies” develop a backbone telecom network. Tower companies besides constructing towers, house the transmitting equipment of the tenants, security, fibre to the tower site, power back up and regular maintenance of the tower. Service providers wanting to start providing services use the towers owned by tower companies. Huge costs associated with the rollout of telecom network, financial constraints and increasing environmentalist issues are giving rise to such practices. Service providers locate towers that are suitable for them by conducting radio frequency tests. This will be followed by negotiations on rent between the tower company and the service provider. The necessary technical condition in this context is to see that the transmitting equipment of different service providers sharing towers will not interfere.

The above model assumes that investment in the backbone is commercially viable. In the absence of commercial viability, the backbone can be established in specified regions through partial or full government assistance. Alternatively, it can also be created as a part of the roll-out conditions of licensing or concession agreements for operating services. The government establishing the cellular phone backbone in rural areas is vindicated if substantial private investments take place in service provision after the creation of the backbone.

The second approach for developing backbone networks is adopted in China. In China different public sector units compete to provide telecom services. Moreover, specialised telecom service organisations are created to serve each of the functional telecom service segments like, fixed-lines and data, mobile, paging and satellite. Second, region level and subregion level units of public sector telecom service providers are put under dual control on the telecom ministry and local governments. Broad policy objectives to these regional units are provided by the centre, while these objectives are fulfilled in alliance with local governments. This element has become the main factor that propels the development of the local network in China. Third, the government has progressively delegated service administration, network planning, financing and procurement responsibilities to the provincial and municipal level units. This decentralised decision-making process has resulted in region specific network development programmes, which ensure sustainability of these units. At present, provincial and municipal level telecom authorities are relying on internal funds to finance 60 to 90 per cent of network expansion. These three institutional factors are mainly responsible for network development in China.

As for telecom regulatory policy in China, agencies that have established some backbone network like railways and the army, were instructed by the government to supplement the efforts of telecom operators in expanding into remote areas. They were also instructed to build spare capacity at the time of expansion, which could be utilised to provide access to people in rural areas. Second, on the one hand a competitive market was encouraged and on the other, “complete forbearance of market competitions” was avoided with a view to prevent over-competition in view of actual conditions of the Chinese market. Third, China has opposed the duplication of networks5 and adopted positive measures to guide such development, so that greater waste of network resources is avoided. This was done by stipulating strict standards in project assessment and approval. Thus, China’s successful roll-out of backbone network in rural areas was based on both regulation and institutional factors.

The Indian Case

In India, presently, two types of operators have established the telecom backbone. The first type is the “infrastructure

Economic and Political Weekly January 20, 2007

provider” that establishes the backbone but does not provide telecom services. The second kind is the “infrastructure and service provider” who establishes and leases out the backbone and also uses it to provide retail telecom services in the market. The infrastructure providers (RailTel, Power Grid, Gail India, and others) have established about 50,472 route km of optical fibre cable. The second category of operators established 6,42,546 route km of backbone network as on March 2005. Out of this, BSNL accounted for 82 per cent of the total share. In addition, BSNL has connected all its exchanges in the country (more than 37,000) with reliable media. Given these capacities, the task is to generate synergy from the existing infrastructure for improving rural telephony. A special purpose vehicle (SPV) can be created for this purpose.

However, interconnection6 of networks of new and the incumbent operators has been fraught with inefficient practices. TRAI’s monitoring of the provision of interconnection (POI) status in India revealed that there is heavy congestion at interconnection points of networks of various operators. This is attributed to the existence of inadequate interconnection capacity and long delays in providing interconnection. It was also observed that direct interconnectivity has not been practised now because of which inter-network calls are being routed through higher level trunk automatic exchanges that are located in circle headquarters. This has resulted in an extra burden on the consumers in the form of transit charges and increased congestion at POIs. The relevant question here is what is the most suitable approach to be adopted for rolling out cellular mobile backbone networks in rural India?

The two methods discussed above present two potential alternatives for India. The first one suggests creating a backbone network required for the roll-out of cellular mobile services in rural areas. As BSNL has already developed an extensive network, the new one is parallel and competitive many areas. The newly constructed network, a ready to plug and play type wireless infrastructure, is supported by the USO fund as there is less scope for commercial investment. All cellular service providers will share the newly created network. In such a case, the existing and the new service providers compete with each other to attract new customers in rural areas with lower tariffs and improved efficiency. The system will create critical mass of subscribers that are required to reap network economies faster. Requirement of huge amounts of resources to create a new backbone infrastructure and environmental concerns are against such a method. This also involves creating a framework to address legal and operational issues arising out of sharing the common network.

The second approach, as there is an extensive backbone network already built by the service and infrastructure providers, involves generating synergies out of these capacities. It involves extending the existing backbone network to uncovered rural areas and inducting niche operators as outlined in the unified access licensing recommendations of TRAI. The virtue of this approach is that it avoids duplication of networks that results in huge savings in investments as well as reduces environmental problems that arise due to excessive radio frequency spread. However, it requires revamping the existing inefficient interconnection policy, which is resulting in higher costs and inefficient use of networks. This could involve a long-drawn legal arbitration process among the government, the incumbent operator and other service providers. Therefore, a determined effort by the government is required to adopt this method.

Other Measures Required

Besides, finalising a suitable method for the roll-out of a mobile backbone infrastructure, a few important issues are to be addressed in order to increase teledensity in India. These are:

  • (a) Niche operators: In order to encourage local entrepreneurs who are technically competent to provide communication solutions (but are unable to compete on equal footing with large operators) need to be inducted. This measure will greatly contribute to increasing teledensity in telecom-wise-backward areas.
  • (b) Convergence: Convergence framework allows telecommunication, cable, and broadcasting services to be provided by all operators using single customer premises equipment. This will result in increased sustainability of these facilities as a variety of applications are provided on single facility. The Communication Convergence Bill, 2001 did not get ratified in the Parliament resulting in the lack of a statutory converged regulatory framework in the country.
  • (c) Spectrum allocation: Spectrum is the range of electromagnetic waves in the universe, whose adequacy is central to the growth of mobile services in the rural
  • areas. It should be allocated quickly and free of cost in rural areas.

  • (d) Complementary infrastructure: Telecom is necessary but not sufficient for development. Many other factors contribute to rural economic development, inter alia, electricity, transportation, roads, education, etc. Therefore, these complementary infrastructure facilities need to be improved in rural areas for deriving maximum benefit from telecommunication.
  • (e) Fiscal measures: Service tax, licence fee, spectrum charges, along with duties and levies on telecom equipment are acting as disincentives to spread of telecom services in rural areas. Therefore, reducing these taxes will help lower the cost to the customers and increase teledensity in rural areas that have lower purchasing power.
  • At this juncture, an enabling comprehensive policy framework and institutional structure are required to make ICT as an effective tool of rural poverty eradication in India.




    [The author thanks NCAER for providing excellent facilities that helped in preparing this paper.]

    1 ICT represents a combination of information technology (hardware and software components), communication networks, and various services and applications associated with these.

    2 “Universal Access” policy aims at increasing access to basic public telecommunications services such as village public telephones in rural or remote villages.

    3 “Universal Service” policy focuses on ensuring that the cost of telephone services remains affordable to all people including low-income families and people living in areas of high costs and low revenues of telephone services.

    4 The details of implementation status of USO services are available at, implementationstatus.htm

    5 In a multi-operator environment, national networks are built by competing service providers in order to avoid being dominated by competitors. However, excessive duplicate constructions will result in huge waste of resources and, enterprises will be heavily burdened financially. When these heavily invested sunk resources are left idle, telecom firms will be caught in difficult positions and eventually become bankrupt. Therefore, excessive investments in networks are to be avoided.

    6 TRAI (2005) defined interconnection as “commercial and technical arrangements under which service providers connect their equipment, networks and services to enable their customers to have access to the customers, services and networks of other service providers”.

    Economic and Political Weekly January 20, 2007

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