REVERSE AUCTION MECHANISM FOR FUNDING UNIVERSAL SERVICES

1. REVERSE AUCTION MECHANISMFOR FUNDINGUNIVERSAL SERVICES By SHYAMAL GHOSH Washington D.C. 1st March 2007

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

3. Background 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

4. Revised Auction Procedure for Cellular Mobile 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

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

6. Reverse Auction Process for support from 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 cost • Front Loaded Subsidy • Equated Subsidy

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

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

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. Success of Reforms Growth

11. Size of USOF

12. Implementation Status (as on 30.11.06)

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

14. Thank You