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DoT To Lower ISP License Fees; Why Not Unbundle Last Mile?

The Department of Telecom (DoT) is going to lower the entry barrier for internet service providers (ISPs) to increase the broadband penetration level in the country, reports The Economic Times. The DoT has agreed on cutting down entry fee and performance bank guarantee (PBG) required for category B and C ISPs.

While DoT charges 15 lakh entry fee, PBG of 20L, initial FBG of Rs 1L, and processing fee of Rs 15,000, with the reduced rates DoT is planning to charge Rs 2L entry fee, Rs 10L PBG for category B ISPs. For category C ISPs, where DoT charges Rs 1.5L entry fee, Rs 2L for PBG, Rs 50,000 for initial FBG and Rs 150,000 initial processing fee, with proposed plans it’s planning to charge Rs 20,000 entry fee, Rs 50,000 for PBG, Rs 10,000 for initial FBG, and Rs 10,000 processing fees.

It’s worth noting that India’s target for 2010 was 20 million broadband subscribers and according to recent reports by TRAI, India’s broadband connection base is just 15.09 million at the end of April 2013, from 15.05 million at the end of March. Interestingly, India has a target of 175 million broadband connection by the end of 2017, which seems out of reach looking at the current growth rate.

In August 2012, the Government of India has approved the scheme for creation of the National Optical Fibre Network (NOFN) to provide Broadband connectivity to 2.5 lakh village Panchayats (councils). Telecom commission had approved Rs 20,000 crore in 2011 and the project was supposed to be executed in 3 years.

Why not unbundle the last mile instead?

The entry barrier for ISPs in categories B and C is not the entry fee and bank guarantee, but the right of way for the ISPs. The cost of license is tiny compared to the cost getting broadband into a building or a locality. Typically ISPs have to invest in wire connection, pay off local goons, permissions from municipalities and buildings, among others.

Instead of reducing the license fees, the government should unbundle the last mile. The government should allow ISPs to use infrastructure laid by MTNL and BSNL to reach to the consumer. Licensing infrastructure might also help the loss making state owned telecom operator BSNL to gain some funds from the licensing deal. Note that  BSNL has reported total revenue of Rs 19,305 crore for the nine month period ending December 31, 2012 with total loss of Rs 6,536 crore for the same nine-month period.

In February 2013, Bharti Airtel has mooted a cross-operator broadband network entity, which will manage broadband and fixed line networks, inviting other operators to join in with equity participation, and integrate the management of their broadband and fixed line networks. A month later, Vodafone had entered the wireline segment in the country, by launching wireline services for businesses. At that time we had predicted that a partnership between Vodafone and Airtel is imminent allowing sharing of the cost of network expansion.

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