An ambitious government project to subsidize private operators and encourage them to offer telephone services in rural areas is suddenly finding itself in the driver’s seat.
Faced with dozens of operators scrambling to take advantage of the proposed government tower infrastructure, the Universal Service Obligation Fund—the agency in charge of promoting rural telephony—finds itself in an unexpected position. The agency may actually recover part of the cost of installing 7,800 towers across the country. This, when it had earmarked funds to provide incentives to these operators to use the towers.
The government had anticipated it would need to spend Rs780 crore, or Rs156 crore annually over the next five years, to support service providers who choose to launch their mobile services using the towers. Up to three operators were to share the infrastructure.
But, a week ago, fund officials opened preliminary bids—intended to figure out the amount of subsidy it might have to offer in each area prior to a final round of bidding—only to discover that in 70 of the 81 clusters, at least one operator had asked for zero subsidy.
“Our stand is very clear,” says a senior official of the department of telecom, who did not want to be named, talking about the ongoing bidding process. “In the final round, everybody has to put in a bid lower than or equal to the lowest amount in the previous round. So, if the lowest bid in the first round was zero for an area, it has to be equal or below that in the final tender.”
Mobile operators, most of whom had been planning service expansions into the rural areas to generate new revenue streams, are seeing the government-funded towers as a fast way to start such services.
All they would have to do is to put up their antennae and base-stations. It saves them from time-consuming and expensive activities such as land acquisition, construction of towers, assuring power supplies, etc.—problems typical of private-tower rollouts.
So, with the subsidy obtainable for most of the clusters already at zero, some mobile operators are now mulling whether to offer to pay the government for a place on the tower to make sure they are one of the winning bidders.
The temptation to pay the government could turn into reality as, in 36 out of the 81 clusters—or bid areas—at least four operators quoted zero subsidy in the first round.
Only three will make it past the second round. “If one operator has to be ejected in the final round, there have to be negative bids,” says one industry official who didn’t want to be named.
Meanwhile, of the remaining 45 clusters, each representing around 100 towers, 27 already have three zero-subsidy bids in the first round itself.
As the authorities are bound by the tender to ask at least four operators in the final round and then pick three, chances of a fourth operator submitting a sub-zero bid to climb up the tower has the rest of the pack worried. “Three zeros are worse than four zeros,” explains an official with one of the bidding operators. “Because, in the latter case, all the operators are on the same footing. But in the three-zero-bid scenario, the operator who failed to put in the zero bid in the first round will be tempted to compensate by quoting below zero in the final one.”
While the situation may be worrisome to the operators, fund authorities are delighted at the turn of events.
Even with their tower construction plans, estimated to cost up to Rs1,615 crore over five years, the first round of bids brought down subsidies in most clusters by 60%, with Reliance Infrastructure Ltd bidding at 40% in many areas.
The fund is likely to end this fiscal year with nearly Rs10,000 crore in unspent money, in part because land-line operators haven’t taken up sufficient projects.