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REVERSE AUCTION MECHANISMREVERSE AUCTION MECHANISM

FOR FUNDINGFOR FUNDING

UNIVERSAL SERVICESUNIVERSAL SERVICES

ByBy

SHYAMAL GHOSHSHYAMAL GHOSH

Washington D.C. 1Washington D.C. 1stst March 2007 March 2007

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ContentsContents

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

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BackgroundBackground

Telecom Reforms Process in India Learning Process: National Telecom Policy 1994 Duopoly Mode:

(a) Beauty Contest : Litigations(b) Auction : Speculations

Derailment of Growth 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

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Revised Auction Procedure for Cellular Revised Auction Procedure for Cellular Mobile Services with SpectrumMobile Services with Spectrum

Multi - stage Informed Ascending Bids Bids for determining entry fee payable upfront Three rounds of basic bidding Additional rounds if necessary No reserved price in first round Highest offer of any round is revised price of next

round Spectrum preference for highest successful bidder

where more than one operator was to be inducted License fee and spectrum fees as prescribed

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Universal Service Obligation FundUniversal Service Obligation Fund

Migration from Roll - out obligation to funding approach

5% of revenue of operator earmarked for fund Coverage :-

a) All villages with one Public Telephoneb) All large villages (>2000 population) second

Public Telephonec) Fixed Wire line/ fixed Wireless in high cost

areasd) Infrastructure for Cellular Mobile Services roll

out in uncovered areas (under implementation)

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Reverse Auction Process for support Reverse Auction Process for support from Universal Service Obligation Fundfrom Universal Service Obligation Fund

[Rural Fixed Wire line/ Fixed Wireless]

Multi-layered Informed Descending Process Latin American Model Eligibility: Eligible Licensed Access Providers Concept of Benchmark determination: Net

costa) Front Loaded Subsidyb) Equated Subsidy

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Reverse Auction Process for support Reverse Auction Process for support from Universal Service Obligation Fund from Universal Service Obligation Fund (contd..)(contd..)

[Rural Fixed Wire line/ Fixed Wireless]

3 Basic Rounds Further rounds if necessary Benchmark as reserved price/upper ceiling Lowest bid for each round benchmark for next

round Bids to cover all designated areas of specified

service areas Lowest bidder successful Roll - out obligation

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Reverse Auction Process for Infrastructure Reverse Auction Process for Infrastructure for providing Mobile Servicesfor providing Mobile Services

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

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Reverse Auction Process for Infrastructure Reverse Auction Process for Infrastructure for providing Mobile Services (Contd)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

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0.08 1 2.5 5.07

42

92.88

124.78

189.93

200(Estimated)

0

50

100

150

200

250

1947 1971 1981 1991 2001 2004 2005 2006 2007 (upto midFeb)

Year

To

tal

No

. o

f S

ub

sc

rib

ers (

in M

illio

ns)

Success of Reforms

Growth

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(w. e. f 1.4.2002 upto 30.11.2006) ($ = Rs. 46)

Collection Rs. 14,275 crores ($ 3.1 billion)

Allotted for Universal security

Rs. 5081 crores ($ 1.1 billion)

Distributed Rs. 4232 crores ($ 900 million)

Size of USOF

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Public Access Target Achieved(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 access On 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)

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ConclusionsConclusions

• 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

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Thank YouThank You