Lok Sabha Question No. 965 (UNSTARRED), answered on 2016-03-02
Subject: Bharat Net Project
Ministry: COMMUNICATIONS AND INFORMATION TECHNOLOGY
Asked by: SANTOSH AHLAWAT

## GOVERNMENT OF INDIA MINISTRY OF COMMUNICATIONS AND INFORMATION TECHNOLOGY DEPARTMENT OF TELECOMMUNICATIONS

## LOK SABHA UNSTARRED QUESTION NO. 965 TO BE ANSWERED ON 2 nd  MARCH,  2016

## BHARAT NET PROJECT

965. SHRIMATI SANTOSH AHLAWAT:

Will  the  Minister  of  COMMUNICATIONS  AND  INFORMATION  TECHNOLOGY be pleased to state:

- (a) whether the TRAI has suggested Build-Own-Operate Transfer (BOOT) Model in addition  to  the  three  models  proposed  by  the  Telecom  Department  for  implementing Bharat  Net  which  envisages  broadband  connectivity  to  panchayats  under  the  Digital India initiative; and
- (b) if so, the details thereof?

## ANSWER

## THE MINISTER OF COMMUNICATIONS AND INFORMATION TECHNOLOGY (SHRI RAVI SHANKAR PRASAD)

(a) & (b) Telecom  Regulatory  Authority  of  India  (TRAI),  in  its  recommendations dated  01.02.2016  on    Implementation  Strategy  for  BharatNet  to  provide  broadband connectivity  to  panchayats  under  the  Digital  India  initiative  has  recommended  for  a Public Private Partnership model based on Build-Own-Operate Transfer /Build-OperateTransfer  for  implementation  of  BharatNet.  Summary  of  Recommendations  of  TRAI  is given at Annexure.

Contd…….2/-

## Annexure

## Summary of Recommendations of TRAI on Implementation Strategy for BharatNet

1. A PPP model that aligns private incentives with long term service delivery in the vein of the Build-Own-Operate-Transfer/BuildOperate-Transfer models of implementation be the preferred means of implementation.

2. The scope of the concessionaire's work should include both the deployment and implementation of  the  OFC  and  other  network  infrastructure  as  well  as  operating  the network  for  the  concession  period.  Concessionaires  shall  be  entitled  to  proceeds  of revenue from dark fibre and/or bandwidth.

3. Concessionaires  should  be  selected  by  way  of  a  reverse  bidding  process  to determine  minimum  Viability Gap  Funding  sought  for concession. The  area  of implementation  may  be  analogous  with  the  Licensed  Service  Areas  (LSAs)/or  the State/UT. The use of a reverse bid process to determine lowest VGF sought can ensure that the amount of support from public funds is rational.

4. The  Contracting  Agency  may,  in  the  first  phase,  explore  the  appetite  and response of the potential BOOT participants through bidding process. This can either be done  in  one  go  for  the  entire  country  (by  having  States/LSA  or  packages  as 'Schedules')  or  it  can  be  done  beginning  with  certain  States  with  larger  potential  of bidders' response.

5. In  the  second  phase  (after  excluding  those  area  where  BOOT  model  can  be implemented),  EPC  contractor  may  be  selected.  Such  EPC  contractor  should  be responsible  for  building  the  network  and  will  have  defect  liability  period  of  two  years after  completing  the  network.  When  the  network  is  about  to  be  completed,  the Contracting Agency should engage a third party (through bidding process) who should be responsible for managing and marketing the 60 network as per the broad principles laid down by the Government. The overlapping defect liability period of two years should be used to ensure smooth transition from construction to maintenance phase.

6. The  VGF  payments  should  be  divided  into  two  components-  an  initial  capital expenditure amount to allow the concessionaire adequate funds to meet initial capital costs  and  to  be  able  to  raise  complementary  finance  from  financial  institutions  at reasonable rates, and the rest should be annualised over the concession period and be paid  out  on  the  achievement  of  predefined  milestones.  Early  achievement  of  the milestones would merit early payments incentivizing speedy delivery. The two components  must  be  carefully  balanced  over  the  concession  period  -  while  excess payment  at  the  initiation  stage  can  result  in  the  risk  of  poor  quality  delivery,  not providing  concessionaires  with  sufficient  funding  in  the  beginning  will  necessitate  the deployment of more expensive private finance (the additional costs of which will end up being reflected in the VGF bidding process and thus come from public funds).

7. The  period  of  concession  should  be  coterminous  with  the  technical  life  of  the fibre at present the consensus on this is 25 years. Such a period should be sufficient time  to  align  the  concessionaire's  incentives  with  high  quality  installation  for  service delivery, while also providing a large enough window to make a reasonable profit. The period may be further extended in blocks of 10/20/30 years after concession period at the mutual agreement of the Government and the concessionaire.

Contd……3/-

8. Exceptionally  high  windfall  profits  may  be  dealt  with  by  way  of  a  one-time 'windfall  tax'  and  the  suspension  of  further  VGF  support.  However,  such  measures must be clearly outlined at the outset prior to the bidding stage, in order to ensure the necessary  stability  and  predictability  to  encourage  private  sector  involvement  in  this manner of long term infrastructure project. A clear definition of what shall be considered a windfall profit must thus be provided a priori to bidders, in order to allow this to be factored into their financial and outlay plans.

9. Care  must  be  taken  to  ensure  that  the  concessionaire  provides  access  to  all service providers in a non-discriminatory and transparent manner. Such competition is essential  given  that  all  manner  of  content  (including  entertainment,  entitlements  and Government services) will be delivered on the network.

10. In addition the relationship between the concessionaire and the service provider should be at arm's length. This can be ensured by mandating a legal separation of the businesses  of  infrastructure  provision  and  service  provision  in  case  of  overlapping interests to preclude the possibility of a vertically integrated entity abusing its position.

11. Conditions  requiring  concessionaires  to  adhere  to  a  maximum  set  price  can ensure  service  provision  at  an  affordable  level  and  prevent  anti-competitive  conduct. Such a requirement can be included within the terms of the concession agreement as well as be a prerequisite for the provision of Viability Gap Funding. The maximum price ceiling for wholesale of bandwidth and its evolution over time can be set by the Authority and revised from time to time (or left under forbearance), while retail pricing can be left to market forces subject to the usual competitive safeguards.

12. Liberal eligibility criteria that allows for broad participation is necessary to ensure the participation of a large number of bidders and guarantee a strong and competitive auction process to enable optimal price discovery.

13. There is no need to place a cap on participation in the bidding process - however a cap should be set on the number of implementation areas that are allocated. This can ensure that the  bidders' capacity and resources are not stretched thin due to winning bids for too many areas.

14. Any  bidding  agency/consortium  with  winning  bids  in  more  than  the  maximum number of implementation areas permitted for allocation can be allowed to choose the areas it wishes to be allocated.

15. As  winning  bidders  maximize  allocations  slots  available  to  them  they  will  be removed  from  consideration.  In  the  remaining  areas  the  agency/consortium  with  the second  best  bid  may  be  offered  the  implementation  contract  on  the  same  terms  as under  the  winning  bid.  However  where  areas  remain  but  the  winning  L1  bidders  no longer have allocations slots available, the L2 bidder may be engaged.

16. Concessionaires  be  provided  with  flexibility  in  terms  of  route  for  laying  optical fibre,  choice  of  construction,  topology  and  technology  in  order  to  ensure  technical  as well  as  economic  efficiency.  This  flexibility  is  subject  to  the  same  standards  of redundancy and quality as outlined for BharatNet by the Committee on NOFN.

17. Concessionaires  be  encouraged  to  and  have  the  flexibility  to  deploy  large amounts of dark fibre in order to ensure that the network remains future proof and easy to upgrade.

Contd……4/-

18. The  Central  and  State  Governments  act  as  anchor  clients  to  purchase  a minimum amount of bandwidth (100 Mbps) to be purchased at market prices for the provision  of  services.  Additionally,  the  mandating  of  a  minimum  amount  of  fibre  (eg. 50%) be set aside for use by other service providers in order to encourage competition may be considered.

19. RoW  is  perceived  as  a  major  risk  factor  by  the  private  sector,  safeguards recognising such a possibility and outlining the steps to be taken must be put in place under the agreement to attenuate such risk and encourage participation. Guaranteed provision  of  free  RoW  is  a  necessary  and  non-negotiable  precondition  to  successful deployment of BharatNet, subject to the reinstatement of public property to its original condition.

20. Involvement  of  State  Governments  is  essential  for  success  of  the  project irrespective of the strategy chosen for implementing it. States/UTs should be made an integral part of the project implementation and an institutional mechanism both at the State  and  District  level  should  be  created  to  effectively  coordinate  and  sort  out  the implementation issues.

21. The  Central  and  State  Government  should  additionally  consider  becoming involved with the concessionaire by becoming a minority equity partner (~26%) in the selected consortium - this can reduce the perceived risks and thus lower the costs of obtaining  private  finance  while  also  automatically  solving  the  risks  associated  with windfall profits. In addition, this can help the Government check monopolistic behaviour on the part of the concessionaire.

22. Last but not the least, capacity enhancement at BBNL is essential. A structural rehaul to bring in professional management (perhaps by way of secondment of experts from the private sector) as well as to restructure the organization along the lines of the Delhi Metro Rail Corporation may be considered.

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