1. 1 REVERSE AUCTION MECHANISM FOR FUNDING UNIVERSAL SERVICES By SHYAMAL GHOSH Washington D.C. 1 st March 2007

2. 2 Contents 1. TELECOM REFORMS PROCESS IN INDIA 2. REVISED AUCTION PROCESS FOR MOBILE SERVICES (2000) 3. UNIVERSAL SERVICE OBLIGATION FUND (2002) 4. REVERSE AUCTION PROCESS FOR BASIC SERVICES (2004) 5. REVERSE AUCTION PROCESS FOR INFRASTRUCTURE FOR MOBILE SERVICES (2007) 6. GROWTH PATH 7. CONCLUSIONS

3. 3 Background Telecom Reforms Process in India l Learning Process: National Telecom Policy 1994 l Duopoly Mode: (a) Beauty Contest: Litigations (b) Auction : Speculations l Derailment of Growth l Revised Reforms Package : New Telecom Policy 1999 (a) License Fee: Share of Revenue (b) Full Competition: Unrestricted Entry without Spectrum (c) Buoyancy of revenues ensured Win - Win situation for service providers and Government

4. 4 Revised Auction Procedure for Cellular Mobile Services with Spectrum l Multi - stage Informed Ascending Bids l Bids for determining entry fee payable upfront l Three rounds of basic bidding l Additional rounds if necessary l No reserved price in first round l Highest offer of any round is revised price of next round l Spectrum preference for highest successful bidder where more than one operator was to be inducted l License fee and spectrum fees as prescribed

5. 5 Universal Service Obligation Fund l Migration from Roll - out obligation to funding approach l 5% of revenue of operator earmarked for fund l Coverage :- a) All villages with one Public Telephone b) All large villages (>2000 population) second Public Telephone c) Fixed Wire line/ fixed Wireless in high cost areas d) Infrastructure for Cellular Mobile Services roll out in uncovered areas (under implementation)

6. 6 Reverse Auction Process for support from Universal Service Obligation Fund [Rural Fixed Wire line/ Fixed Wireless] l Multi-layered Informed Descending Process l Latin American Model l Eligibility: Eligible Licensed Access Providers l Concept of Benchmark determination: Net cost a) Front Loaded Subsidy b) Equated Subsidy

7. 7 Reverse Auction Process for support from Universal Service Obligation Fund (contd..) [Rural Fixed Wire line/ Fixed Wireless] l 3 Basic Rounds l Further rounds if necessary l Benchmark as reserved price/upper ceiling l Lowest bid for each round benchmark for next round l Bids to cover all designated areas of specified service areas l Lowest bidder successful l Roll - out obligation

8. 8 Reverse Auction Process for Infrastructure for providing Mobile Services l Two part Multi-Layered Informed Descending Bidding Process a. Part A: Passive Infrastructure (Towers/Power/Associated Civil/ Electrical Facilities) (Shareable) b. Part B: Active Infrastructure (BTS/Antennas/Backhaul) (Non-shareable) Eligibility Part A: Infrastructure Service Providers/ Access Providers Part B: Access Providers

9. 9 Reverse Auction Process for Infrastructure for providing Mobile Services (Contd) Pre - determined Tower Locations/ Specifications Uncovered Areas Benchmark as reserved price for each part Two basic rounds for each part Lowest bid for each round as reserved price for next round Lowest bidder for Part A Lowest 3 bidders for Part B ( ≤ 25% higher) Location of tower prescribed Roll - out obligations

10. 10 Success of Reforms Growth

11. 11 (w. e. f 1.4.2002 upto 30.11.2006) ($ = Rs. 46) CollectionRs. 14,275 crores($ 3.1 billion) Allotted for Universal security Rs. 5081 crores($ 1.1 billion) DistributedRs. 4232 crores($ 900 million) Size of USOF

12. 12 Public AccessTargetAchieved (a) Village Public Telephone (VPT) (b) Replacement of non functional VPTs (c) Second VPT in larger Villages 5,78000 1,86,000 46,000 5,55,000 1,65,131 34,172 Household accessOn Demand (Rural Areas Subscribers) Wait list estimates 2,00,000 15 Million (12.5 million supported by USOF) Implementation Status (as on 30.11.06)

13. 13 Conclusions Need based Customisation of Auction Process a.Incentivise Competition b.Prevent Speculation Characteristics of adopted auction process a.Transparent and Explicit b.Equitable and Non - discriminatory c.Specific, predictable and Sufficient

14. 14 Thank You