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Budget’09: Economic Survey: FDI In Telecom, DNC, USO Fund, BSNL Deal; e-Payment

In the Economic Survey 2008-09 released by the Indian government yesterday, they highlighted key initiatives made in the mobile and broadband sectors, including data related to foreign direct investment, USO fund utilization, etc.

Targets for the end of the Eleventh Five Year Plan:

— 600 million mobile subscribers
— Rural tele-density of 25 per cent by means of 200 million rural connections
— Broadband for all secondary and higher secondary schools; all public health care centres and gram panchayats.
— 40 Million Internet and 20 million broadband subscribers by 2010.

BSNL Wireline Broadband Deal

According to the Economic Survey, 8,61,459 wireline* broadband connections with speed of at least 512 kbps always on, shall be provided by BSNL with subsidy support from the USO Fund. An agreement was signed in January 2009 with BSNL to provide these connections to rural and remote areas by leveraging the existing 27,789 rural exchanges and copper wireline network and by facilitating the service providers in creating broadband infrastructure.

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The rural broadband connectivity will cover Government, institutional users, gram panchayats, higher secondary schools, public health centres and individual users. Subsidy would also be provided for setting up one kiosk from each rural exchange for providing public access to broadband services.

* Note: At one point in the Economic Survey, a reference is made to 8, 61, 459 wire-less services, while at another, a reference is made to 8, 61, 459 wire-line services. We’ll try and find a copy of the contract and update.

Growth In Telecom

According to the Economic Survey 2008-09, the Indian telecom network had 414 million connections in February 2009, is the third largest in the world, and is the the second largest wireless network in the world.


The total number of telephones increased from 76.53 million by end-March 2004 to 413.85 million by end-February 2009. About 113.36 million telephones, at the rate of more than 14 million subscribers every month, were added during the 11 months of 2008-2009. Total tele-density increased from 12.7 per cent in March 2006 to 35.65 per cent in February 2009. While rural tele-density reached 13.81 per cent in January 2009, the urban teledensity shot up to 83.66 per cent.

Foreign Direct Investment (FDI) increases In Telecom and Information & Broadcasting

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Foreign Direct Investment in Information and Broadcasting surprisingly grew by as much as 170% – from Rs. 1290.3 crores in 2007-08, to Rs. 3492.4 crores in 2008-09. Remember that investment in news businesses is limited to around 26% because of which foreign investment in the sector has been limited.

India allows a maximum of 74 percent foreign direct investment in Telecom operators, though, according to the survey, in case of some telecom services, 100 percent investment is allowed. The total FDI inflows since January 2000 to December 2008 is Rs. 27,482.96 crore and the inflow during 2008 was Rs. 11,595.48 crore.


Telecom was among the sectors which attracted most FDI, at Rs. 11726.9 crores, up 44 percent from previous fiscals. This increase in investment may be attributed to the entrance of new telecom operators in India, the likes of Swan Telecom, Unitech Wireless, S-Tel, MTS (Shyam-Sistema), among others, who have all managed to raise foreign capital from international telecom operators.

Apart from this, in the last four years, companies like Nokia, Motorola, Sony Ericsson, Samsung, Flextronics and LG Electronics have set up their mobile phone manufacturing units for meeting more than 50 per cent of the domestic demand, besides exports. Nokia-Siemens Network, Ericsson and Tejas Networks have setup their manufacturing units for wireless equipments including BTS and complete transmission equipment within the country. The Indian Government has set up a Telecom Equipment and Services Export Promotion Council for promotion of Telecom exports.

Do Not Call Registry

Only 7.2 million subscribers of the estimated 400 million subscribers in India have registered for the National Do No Call Registry, which seeks to help regulate unsolicited calls from telemarketers.

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Post Offices & E-Payment

By the end of 2008-09, a total of 9,674 POs — including rural  have been computerized. 1,233 offices have been networked with the National Data Centre. The on-line domestic money transmission service, iMO, launched in 2006, that enables customer to receive money in minutes from the post offices providing this service is functional over 1,000 locations. e-Payment of various bills via post offices is now available in about 5,700 post offices and will soon be extended to all computerized post offices.

USO Fund Utilization

The Universal Services Obligation (USO) Fund was set up to collect money from private telecom operators – hence customers of those operators, mainly in the metro, A and B class towns then – and utilize that money for improving the state of telephony in rural India. As of 31st March 2009, a total of 20,404.4 crores of money hadbeen generated by this fund, and an abysmally low 34.44% of that money had been utilized; in fact, utilization was at its lowest in the 2008-09 fiscal in the last five years.


The USO Fund was discontinued due to low utilization last fiscal, but has so far been used for the following:

— Village Public Telephones (VPT), Rural Community Phones: about 5,49,133 VPTs are currently eligible for financial support as on 28.2.2009. BSNL has set up 56,736 VPTs of a planned 66,822 uncovered villages; to be completed by November 2009. 40,616 Rural Community Phones have been provided till February 2009, out of a planned number of 40,705 rural community phones (RCP) in villages with population of more than 2,000 and not having PCOs facility.

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— Tower Infrastructure: The government plans to set up and manage 7,871 infrastructure sites spread over 500 districts in 27 states for the provision of mobile services. The infrastructure so created shall be shared by three service providers, and as of 28.02.2009, about 3,941 towers have been set up, of which 3,715 BTSs installed on many of these towers have started providing services. About 10,128 towers are proposed to be installed under second phase of the scheme.

— MARR and Rural Direct Exchanges: USO(F) support is given for provisioning of rural direct exchange lines (RDELs) in all the 1,685 net cost positive short distance charging areas (SDCAs). Multi-access radio relay (MARR)-based VPTs installed before April 2002 are being replaced under USO(F). Out of a total of 1,86,872 MARR based VPTs, 1,83,756 have been replaced till February 2009.




Interestingly, RailTel, which was set up for creating OFC-based communication infrastructure for train operations and to generate revenue through commercial exploitation of surplus capacity, has created an OFC network of 34,932 RKMs, of which 25,130 RKMs is of high bandwidth capacity. Till date, 220 important and about 3,150 other stations have been put on OFC network, and the Indian Railways is in a position to lease the surplus capacity on commercial terms.

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Part 1: Budget 09: Economic Survey Suggests MSME Support, Spectrum Trading, Opening Local Loop


– Why Not A Spectrum Trading Exchange?
– Budget 09 Demands: CII On Broadband, Indic Languages, Telemedicine, USO Fund, Spectrum & Taxes
– Budget Demands 2009: Duty Cuts, Tax Holidays; DTH, Cable, TV; Past Budgets
– Roundup: Handset, DTH Taxes; Pyramid Saimira; Industry Moves; Oxigen; Bindass; FM Licenses;



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