Creating viable business models for inclusive growth through the National Optical Fiber Network. kpmg.com/in

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1 Creating viable business models for inclusive growth through the National Optical Fiber Network kpmg.com/in

2 Foreword Chandrajit Banerjee Director General Confederation of Indian Industries (CII) The role of high-speed broadband in transforming the livelihoods of millions can hardly be over-emphasized. Various countries across the world have recognized this potential and have been actively investing in broadband infrastructure as part of the National Agenda. India s telecom sector has created history with its phenomenal growth story and there is no reason why broadband growth would not follow a similar trajectory. The potential of connecting the relatively under-connected rural areas is especially high. The Government of India has taken a commendable step by commissioning the National Fiber Optic Network with an investment of INR 21,000 crores. The National Optical Fiber Network (NOFN) will connect 2,50,000 Gram Panchayats with a maximum speed of 100 Mbps. Such high-speed Internet access can not only extend connection to the bottom of the pyramid, but also generate skills and employment, thereby delivering empowerment to the rural population. The transformation possibilities are endless. It is now imperative to deliberate on how to create compelling services using this national asset services that will touch the lives of nearly 90 crore rural Indians and empower them socially and financially. The Confederation of Indian Industry (CII) has embraced Accelerating Economic Growth through Innovation, Transformation, Inclusion and Governance as its theme for the year and is committed to the cause of infrastructure building for competitiveness and inclusive growth. As part of its continuous agenda to promote the growth of broadband in the country, CII has commissioned this study to KPMG in India to explore viable business models that can enable the provision of relevant and affordable services to India s rural population using the NOFN. Developed by KPMG in India, this report explores how broadband can help create a sustainable and digitally inclusive society. This report is expected to serve as a useful reference for the Government and the industry as they jointly deliberate on how best the national fiber network asset can be leveraged.

3 Introduction India has witnessed a remarkable growth story with the telecom sector, especially in the wireless segment. The increasing use of mobile phones in rural areas has brought about drastic changes in the lives and livelihoods of rural Indians. Mobile telephony has enabled significant social, financial and economic inclusion, led to the creation of a strong ecosystem and thriving business models, and created disruptive value at the bottom of the pyramid. The story with broadband could be similar, if not more exciting. The National Optical Fiber Network (NOFN) connecting 2,50,000 Gram Panchayats is already under implementation. The industry has started experimenting with pilot projects in various parts of the country and the experience has been encouraging. It is believed that these services, if operational at a commercial scale, can significantly facilitate the Government s inclusion agenda, while safeguarding the commercial interests of private sector participants. Kiran Karnik Chairman, CII National Committee on Telecom & Broadband ( ) This report considers four sectors where NOFN-enabled high-speed broadband can make a difference at a grass root level. These priority sectors are education, healthcare, banking and agriculture. It presents a broad-based view of the possible business models that could emerge and identifies three critical stake-holders in the broadband ecosystem the Public Sector, the Private Sector, and the Panchayats who need to come together to build sustainable business models that guarantee significant commercial (business feasibility) and social returns (inclusive growth, rural skill-building and employment generation). Developed by KPMG in India, this report explores some possible business models in the Public-Private partnership mode and presents some recommendations arising from extensive desk research and interactions with industry and Government representatives. The report is intended to be thought-provoking, throwing up various possibilities that lie ahead in India s broadband journey. We hope it will stimulate not only discussion and debate, but concrete action to create the facilitative environment which will enable broadband to play a major role in the agenda for growth and inclusion.

4 Message from the Chairman The ability of broadband to make effective intervention in inclusive growth (especially in critical areas such as education, healthcare, financial inclusion and agriculture) has been proved by various pilots conducted by the Government and the private sector. There is enough evidence on the ground that an average Indian villager is ready to consume quality services delivered through ICT, and these services can be delivered more efficiently and economically. Harish Krishnan Chairman CII Sub-Group on Broadband The key to make the pilots take off to scale is in the creation of viable business models and ensuring a technology architecture that is future proofed. While laying down fiber to the village is a necessary condition for success, it is not a sufficient condition; more needs to be done. Some important ingredients that will determine scale include: Infusion of money in the system which will make it affordable for the consumers, who are often Below the Poverty Level (BPL). This will create sufficient demand for these services and will make it commercially sustainable for the private sector to provide these services. Adaption of the National Optical Fiber Network (NOFN) by various Government bodies, line ministries (such as Health, Education, Agriculture), Panchayati Raj, and State Governments as the principal channels for delivering services and channelizing their budgets The private sector showing commitment and faith in the inclusive growth agenda and making investments, which may not be attractive in the short term, but which, with time, would scale up and become profitable, while discharging important social responsibility. The objective of the report is to provide some initial framework for Public Private Partnership (PPP) but most importantly, lay the foundation for a cohesive view and action plan of all stake holders that will make broadband and ICT intervention impactful, inclusive, immersive and sustainable in India.

5 Message from KPMG Broadband has the power to re-shape an economy. Jaideep Ghosh Partner, Management Consulting KPMG in India Governments across the world have recognized the importance of broadband in nation building and have invested heavily on national broadband projects. The Government of India s efforts of taking highspeed broadband up to the village level is highly encouraging. By investing on fiber network infrastructure, the Government will not only connect remote areas, but will also lay the foundation for new economic activities, that will, in turn, spur inclusive growth, skill-building, and employment generation. The experience from the various broadband projects piloted across the country indicates significant potential of providing broadband-enabled services across priority sectors such as education, healthcare, banking and agriculture. For demand to be generated automatically, these services will need to be relevant and affordable to the rural masses, and commercially viable for the service providers. This calls for robust Public- Private partnerships, with active involvement of the local governing bodies. This is a challenging situation that will require innovative thinking jointly from the Government and the industry. The task now is to deliberate on potential business models that create win-win value for all stakeholders, while factoring in all existing constraints. This report is an attempt to present a cohesive view of the current situation and trigger thought around some possible business models.

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7 Acknowledgements We would like to thank the following Government and industry stakeholders for providing their valuable knowledge, experience and insights on NOFN pilots and existing e-services. Mr. Neeraj Arora, Director, CISCO Consulting Services, India and SAARC Mr. Arvind Sivaramakrishnan, CIO, Apollo Hospitals Mr. Sougata Roy Choudhury, Director - Skills, School Education & Affirmative Action, CII Mr. Anil Jain, SGM, Bharat Sanchar Nigam Ltd Mr. Jaijit Bhattacharya, Director, Corporate Affairs, Hewlett Packard India Mr. Jatinder Handoo, Manager of Strategic Alliances, FINO PayTech Ltd Mr. Arun K Pande, Head, TCS Innovation Labs Mr. Yogesh Bahl, Associate Vice President, HCL Educare Mr. Pranav Roach, President, Hughes Network Systems Mr. Varun Sood, CIO, Fortis Healthcare Mr. Sanjay Panigrahi, CEO, Sahaj e-village Ltd. Mrs. Meena Chaturvedi, Co-CEO, Sahaj e-village Ltd. We are grateful to the CII Secretariat Group for their continuous guidance and support. Mr. Kiran Karnik, Chairman, CII National Committee on Telecom & Broadband ( ) Mr. Harish Krishnan, Chairman, CII Sub-Group on Broadband ( ) Ms. Arunima Sharma, Director, IT and Telecom, CII Mr. Uday Laroia, Deputy Director, CII This report was prepared by a KPMG team comprising Sutithi Chakraborty, Alekh Tiwari, Puneet Punyani, Arpita Gupta, Parikshit Sinha, Ankit Gupta, Radhika Goel and Nitin Pandey, under the leadership of Jaideep Ghosh, Partner, Management Consulting (KPMG in India).

8 Executive Summary Over the last few decades, the Government of India has undertaken a wide range of reforms to drive inclusive growth. One of the major challenges facing the Government is ensuring that the implementation of these reforms reach the bottom of the pyramid. ICT, particularly wide access to high speed broadband connectivity, has been recognized as one of the most important means to overcome this challenge. The Government s INR 21,000 crore investment in the National Optical Fiber Network (NOFN) funded from the Universal Service Obligation Fund (USOF) has set the stage for extending broadband access to the country s 6 lakh plus villages. As the fiber infrastructure gets ready, it is important to ensure that there is a steady supply of relevant content and applications in key growth sectors such as education, healthcare, banking and agriculture. To this effect, the need of the hour is to create scalable, commercially feasible business models underpinning a Public-Private-Panchayat ecosystem. This report identifies the following services that can be offered to the rural population for meaningful social, financial, and economic inclusion. Table1: e-services considered in this report Education Remote classrooms in rural government schools Online vocational training courses delivered through rural ICT centers such as the Common Service Centers Healthcare Telemedicine centers for remote consultation and diagnostics, set up by private healthcare service providers or by rural entrepreneurs in collaboration with private healthcare service providers Banking Basic banking services to the unbanked population using, among others, the Post Office network Doorstep banking services from various commercial banks through the Business Correspondent network maintained by a third-party private provider Agriculture Internet kiosks for providing agriculture-related information to farmers Integrated application platform that pushes agricultural information over SMS and can also be accessed at kiosks Drawing from the experience of the multiple pilots that are being conducted in the country, and the various e-services that are already being offered as part of companies Corporate Social Responsibility, the report suggests some business models that: Enable delivery at affordable cost to the end-user Are scalable Generate adequate commercial and social returns While many of these models could be self-sustaining, a few would require some money to be infused in the hands of the consumer to generate demand. The report proposes the possibility of channeling funds from existing Government programs such as Sarva Shiksha Abhiyan and the new National Health Mission (a new program created in FY14 combining the National Rural Health Mission and the National Urban Health Mission) 1 to create this corpus. Given that broadbandenabled services aim to achieve the same outcome as these programs do, such reallocation of funds would help the Government speed up its inclusion agenda, while building skills and generating employment in rural areas. The report concludes with a recommendation to set up a CII-Government Working Group comprising all relevant stakeholders from the Government and the industry. This Group will act as the core body for coordinating multi-stakeholder discussions and stimulating a collaborated approach towards delivering affordable e-services to rural India over the NOFN. 1 The Hindu, March 2013

9 Contents 01 The Current State of Internet Usage in India 04 The National Fiber Optic Network (NOFN) 06 Emerging Opportunity Areas and Ecosystems 10 Business Models Education 11 Healthcare 18 Banking 24 Agriculture A Way Forward 41 About KPMG in India 42 About CII

10 1 Creating viable business models for inclusive growth through the National Optical Fiber Network The Current State of Internet Usage in India India has witnessed significant growth in telephone connectivity over the last six years, with tele-density increasing from 17.2 percent in December to 73.3 percent in December The Internet penetration level, however, remains a challenge at 10.1 Internet users per 100 people 4. The penetration levels of broadband are significantly lower and need to be addressed, given the established economic linkages between broadband penetration and GDP. As per World Bank estimates, a 10 percent increase in broadband penetration would yield a 1.38 percent increase in GDP growth on average for low/middle-income countries 5 higher than the impact of mobile penetration on GDP growth 5. Table 2: India s ranking on key broadband indicators Indicator India s Rank Value (2011) Fixed Broadband Penetration (Subs per 100 inhabitants) Active Mobile Broadband Penetration (Subs per 100 inhabitants) Percentage of households with Internet Percentage of individuals using Internet Source: ITU, The State Of Broadband 2012: Achieving Digital Inclusion For All, Sept TRAI, The Indian Telecom Services Performance Indicators, published 7 April TRAI, The Indian Telecom Services Performance Indicators, published 6 May World Bank database 5 Broadband Commission for Digital Development

11 Creating viable business models for inclusive growth through the National Optical Fiber Network 2 Even within the economically comparable BRICSM grouping, India lags on key broadband indicators. Chart 1: Technology Consumption Metrics - BRICSM Source: The World Economic Forum and INSEAD, The Global Information Technology Report 2012 While the National Broadband Policy 2010 targeted 446 lakh fixed broadband subscribers and 265 lakh wireless broadband subscribers by 2012, data from the Telecom Regulatory Authority of India (TRAI) indicates that there were only about 150 lakh broadband subscribers in India as on January Further, there is significant gap in Internet penetration between urban and rural India. As per a study conducted by the IAMAI and IMRB in 2012, active Internet users represented only 5 percent of the rural population as against 25 percent population in urban India 7. Chart 2: Gap in rural-urban Internet usage Source: i-cube/imrb/ IAMAI, Internet in Rural India, Highlights of Telecom Subscription Data as of 31 January 2013, TRAI, dated 15th March IAMAI, IMRB, etech, Report on Internet in India (I-Cube), 2012

12 3 Creating viable business models for inclusive growth through the National Optical Fiber Network Internet usage in rural India can be spurred by focusing on the critical success factors, i.e., the 4As Availability, Affordability, Accessibility and Acceptability. Availability: The availability of relevant regional content and the G2C services envisaged in the National egovernance Plan (NeGP) are two pull factors that could spur Internet usage in rural India. However, as revealed through a Cisco study (refer to chart 3), lack of service availability is one of the biggest barriers to Internet usage at rural ICT centers. Accessibility: As per the IAMAI-IMRB study, Common Service Centers (CSC) at the Panchayat level serve as the most common touchpoint for accessing the Internet in rural areas. Each CSC caters to some six villages and nearly 30 percent of rural consumers have to travel more than 10 km to access the Internet at the nearest CSC. Many CSCs also suffer from inadequate power supply and Internet connectivity issues. 8 Affordability: Broadband usage in rural India can be stimulated through affordable delivery of critical services such as healthcare, education, banking, agriculture, etc. to the rural population. Acceptability: Uptake of affordable, relevant services via electronic means in rural India is contingent upon awareness of the relative merits of such services and the perceived value. Due to relatively lower awareness and education levels, rural India still does not seem to fully accept the Internet as an empowerment medium. Therefore, awareness programs would be required to educate the rural population on the value proposition of using ICT in accessing essential services. Further, content delivery in vernacular languages would increase the acceptability of e-services in rural areas. A lot of the critical needs of villagers can be met by enabling easy and affordable access to basic information in vernacular languages. Realizing the potential of ICT in achieving the inclusive growth targets, the Government has given special impetus to broadband in National Telecom Policy, A key step in this direction is the National Optical Fiber Network (NOFN) project. Chart 3: Barriers to usage of Internet in rural ICT centers Source: CISCO IBSG-IMRB Rural India Connected Life Survey, 2012 Note: Market survey of around 3000 respondent across most states in India. 37% respondents in ICT-connected villages. VLE refers to village level entreprenuer - the person in-charge of the rural ICT center 8 World Academy of Science, Engineering and Technology - Citizen s expectations from rural telecenters

13 Creating viable business models for inclusive growth through the National Optical Fiber Network 4 The National Fiber Optic Network (NOFN) Through the NOFN project, the Government plans to extend fiber connectivity from the block level to the Panchayat level by connecting 2.5 lakh Gram Panchayats. The Special Purpose Vehicle (SPV) set up for this project, Bharat Broadband Network Limited (BBNL), is working on laying out the necessary length of fiber. Figure 1: NOFN infrastructure Service Layer High Speed Internet, Video/Voice calling, Video Entertainment and E-Services (Learning, Health, Retail, Banking, Governance) State (28)/ District (640) level PGCIL DWDM Core Layer: Fiber transport BSNL DWDM RAILTEL DWDM Core/Fiber to be provided by BSNL, PGCIL and RailTel Block (6283) level Middle mile layer: Fiber access GPON The focus of the NOFN project: INR 21,000 crore investment from the USOF Gram Panchayat (2,50,000) level Wi-Fi Villages (638,619) Last mile layer: Service Providers 3G 4G Wired Expected to be provided by private telecom operators through nondiscriminatory access End User devices (PC, Mobile Phones, Tablet, Laptops, STB, VoIP Terminals, Retail PoS) Source: Adapted from Connecting India Enabling Socially Inclusive Growth through National Broadband Network, Cisco, 2012

14 5 Creating viable business models for inclusive growth through the National Optical Fiber Network As of April 2013, twenty two states and 4 Union Territories had signed tripartite agreements for Right of Way with the Department of Telecommunications (DoT) and BBNL 9. BBNL has already embarked upon pilot projects to test feasibility in different geographical regions. The NOFN project will build a strong middle-mile, but to build sustainable business models around relevant e-services for the rural masses, there is a need to deliberate on the core and the last mile. Future-proofing the core: NOFN would enable access to and usage of several e-services such as healthcare, education, financial services, agriculture, e-governance and entertainment. The planned provisioning of 100 Mbps bandwidth through NOFN at the Gram Panchayat level translates into demand of 60 Gbps (average demand assuming 10 percent concurrency) per State Head Quarter. Further, as per Cisco estimates, data growth is expected to increase around five times over a five year period. Current core capacities of service providers may not be adequate to cater to this demand. A parallel upgrade of core capacities may therefore, be considered along with NOFN rollout. Clarity around the last mile: While NOFN is a commendable step in bridging the urbanrural divide in broadband penetration, last mile access would be critical for realizing the policy objectives of inclusion and universal access. As we explore viable business models for rural e-services, the critical need for the last mile becomes apparent. Middle mile fiber layout enables affordable delivery of critical services at the Panchayat level through community-based service provisioning. However, efficient and viable delivery of certain community services would require extending connectivity to the last mile (for example, school premises in the case of education). Extending the last mile access to individual households would prove conducive to awareness and uptake, as rural users get accustomed to electronic delivery of essential services. This would require collaboration between the Government and private sector enterprises to work out strategies that make the proposition viable for all stakeholders. 9 CIOL Interview with Mr. N. Ravi Shankar, Chairman & MD, BBNL, published on ciol.com May 14, 2013

15 Creating viable business models for inclusive growth through the National Optical Fiber Network 6 Emerging Opportunity Areas and Ecosystems Research conducted on thirty three OECD countries estimates that doubling the broadband speed increases GDP of an economy by 0.3 percent 10. The NOFN, with its promise of speed up to 100 Mbps, has significant potential to deliver rural empowerment, particularly in key sectors such as education, healthcare, banking, and agriculture. Table 3: The NOFN value proposition for key sectors Education Current state In many states in India, the teacher-to-pupil ratio in government-run rural schools is lower than the RTE-mandated 1:40 11 Only 32 percent of Standard III students in Government schools can read Standard I text Connected services that will be useful Remote tuitions, information on schools and universities Vocational training courses delivered online Potential benefits Access to quality education and skilled teachers based in urban centers Skill development and placement assistance for rural youth 10 Ericsson, September NCERT, Indian Educational Review, July 2011

16 7 Creating viable business models for inclusive growth through the National Optical Fiber Network Healthcare Current State 66 percent of rural Indians do not have access to critical medicines and 31 percent of the rural population travels more than 30 kilometers to seek health care 12 Connected services that will be useful Remote tele-consultations Health-related information through mobile phones/ village kiosks Potential benefits Specialist advice from doctors in urban hospitals Information on doctors, diseases, medicines and vaccination Banking Current State Nearly 70 percent of the Indian population resides in rural areas 13 ; however, approximately 61 percent of the rural population remains unbanked 14 As of March 2012, only 1,20,355 banking outlets in villages were being served by Business Correspondents 15 Connected services that will be useful Banking services nearer home Information related to loans and insurance Potential benefits Access to basic banking services Access to information on banking products, loan rates, insurance schemes through mobile phones/village kiosks Agriculture Current State 41 percent farmers require vital agricultural information on a daily basis, and in the absence of other sources, reach out to fellow farmers for information 16 Connected services that will be useful Crop insurance Weather information Marketing/sales of crops Price information Information on agricultural policies Potential benefits Access to real-time alerts on weather and crop prices, farming tips, policies through mobile phones/ village kiosks Near-home access to commerce platforms to sell produce 12 IITM, Healthcare in rural India, March IAMAI, IMRB, etech, Report on Internet in India (I-Cube), Top bank targets Indian rural expansion, Emerging Markets Journal, May No-frills, zero-balance accounts rise over two-fold in last 2 years, The Economic Times, June University of Nebraska-Lincoln, Information needs of rural farmers: A study from Maharashtra, India: A Survey, January 2012

17 Creating viable business models for inclusive growth through the National Optical Fiber Network 8 The need for an ecosystem The NOFN infrastructure has paved the way for relevant e-services, but to operationalize those services, various stakeholders need to come together. There is a clear need for cost-effective devices, vernacular content and lowcost applications relevant to local users, competitive tariffs, etc. The ideal NOFN ecosystem is one that will involve the Central and State Governments, the providers of enabling products and services (both public and private), and local governing bodies to drive and monitor these services at a grass root level. The success of various public development schemes such as Sarva Shiksha Abhiyan (SSA), the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the National Rural Health Mission (NRHM) demonstrates the important role of the Gram Panchayats. For the NOFN ecosystem too, Gram Panchayats, need to be closely involved. Figure 2: The NOFN ecosystem and participants Source: KPMG analysis Table 4: The key ecosystem participants and their roles Ecosystem participant Government Public/private businesses Local governing bodies Role Provide enabling infrastructure Provide G2C services Endorse and certify e-offerings, wherever applicable (e.g. e-learning courses) Provide financial support, wherever necessary Provide and monitor overall regulatory framework Offer last mile access Offer technology platforms and infrastructure Provide content and applications in local languages Offer delivery points for e-services Spread awareness Push G2C services Facilitate training and adoption Collect user feedback Monitor progress of projects Entities State Governments Central Governments BBNL Access and technology providers Hospitals Banks Niche content providers (e.g. weather alerts, crop pricing information, etc.) Private education service providers Agri- cooperatives/suppliers Trading and financing companies Common Service Centers (CSCs) and Village Level Entrepreneurs (VLE) Gram Panchayats Source: KPMG analysis

18 9 Creating viable business models for inclusive growth through the National Optical Fiber Network The Common Service Center (CSC) network Over the last few years, this ecosystem has started taking shape. One case in point is the Government of India s Common Service Center (CSC) scheme. One of the three pillars of the National egovernance Plan (NeGP), the CSC scheme has established 99,247 CSCs (as on 31 December 2012) across the country on a Private-Public partnership mode. 17 These CSCs act as the front-end delivery point for a range of Internet-enabled G2C and B2C services to inhabitants across 5-6 villages. Equipped with computers, basic peripherals, Internet connectivity, and a Village Level Entrepreneur (VLE) owning the center, these CSCs can be a good starting point to deliver e-services such as telemedicine and remote education. With deployment of broadband, the efficiency of CSCs can further increase and they can become multi-service delivery points, as was envisaged in the NeGP. More examples of the ecosystem coming together can be seen in the number of pilot projects carried out across the country. Along with the three key ecosystem participants, NGOs have also played a very important role in facilitating many of these projects/pilots. Table 5: Illustrative e-services projects piloted/operational in India Sector Provider Project Motive Education Microsoft Project Shiksha (Teacher training) CSR: Not for profit Intel Teach (Teacher training) CSR: Not for profit Cisco Project Samudaya (Remote education) CSR: Not for profit SREI Sahaj e-siksha (Vocational education) For profit (through CSC scheme) Healthcare Hewlett-Packard Labs India ehealth Centers in rural areas CSR: Not for profit Apollo Group of Hospitals Apollo Telemedicine Networking Foundation (Telemedicine) CSR: Not for profit ISRO Telemedicine network Rural development: Not for profit Government of Tripura Tele-consultations (Telemedicine) Rural development: Not for profit Cisco Project Samudaya (Telemedicine) CSR: Not for profit Banking FINO Paytech Payment solutions for the unbanked For profit Cisco Bank on Wheels (branchless banking) CSR: Not for profit SREI Sahaj Banking services at the Sahaj CSCs / BC network For profit Agriculture ITC e-choupal CSR: Not for profit Source: KPMG research NOTE: This is not an exhaustive list TCS mkrishi CSR: Not for profit Thomson Reuters Reuters Market Light (RML) For profit It is noteworthy that most of these pilots have been trialed successfully on a limited scale and with a non-profit motive. Private enterprises may have been hesitant in certain instances to venture out into the remote areas as the business case of being able to provide scalable, profit-driven services appears uncertain. However, some of these services such as Reuters Market Light (from Thomson Reuters) and e-shiksha (from SREI Sahaj) have witnessed various degrees of commercial success despite being faced with the same challenging environment. As the Government progresses with its work on the NOFN project, it is important to start deliberating on how some of these business models can be scaled up while retaining their commercial value. 17 Department of Electronics and IT

19 Creating viable business models for inclusive growth through the National Optical Fiber Network 10 Business Models Providing relevant broadband-enabled services through a Public-Private-Panchayat ecosystem requires strong business models with clear returns for each stake holder. While the state bodies would demand tangible social returns in the form of employment generation and skill-building for the rural population, private sector enterprises would seek long-term commercial viability. With the NOFN implementation running well in the background, and the high intent expressed by all three parties Governments, Panchayats and the private sector this is the right time to deliberate on the possible models that could work in the four identified sectors. There are certain basic prerequisites to creating practical business models for rural areas. For instance, the availability of basic infrastructure, such as continuous power supply and uninterrupted connectivity, is imperative for delivery of e-services to rural consumers. Furthermore, building scale for these services is vital to ensure commercial viability of these initiatives. Wide availability of the G2C services that were envisioned in the NeGP would be important to attract footfall at the CSCs. The availability of G2C services such as issuance of birth and death certificates, land records, Right to Information (RTI) services, etc. would attract people to the CSCs, thereby, giving them an opportunity to look at other low cost e-services such as e-learning modules, banking, etc. Business models that involve delivering broadband to the household level also necessitate last mile connectivity a subject which still awaits clear decisions and policies. The Government and the industry have been trying to address many of these issues for a while and progress has been made in some areas. To improve the availability of power, for instance, some states such as Maharashtra are concertedly trying to exploit renewable energy sources to broaden power-supply. It is understood that BBNL plans to make alternative renewable sources of power (mostly solar) available to Gram Panchayats to meet the needs of the fiber network. Various initiatives are underway to utilize alternative power sources to run telecom towers in rural areas. The Telecom Regulatory Authority of India s (TRAI) recommendations on green energy applications have been approved by the Government and TRAI has issued directives to the service providers to adopt green energy measures, with targets laid out till 2020 (75 percent of rural towers to be powered by hybrid power by 2020) 18. Eventually, these alternative energy resources can also be used to power broadband services in rural areas. Despite efforts from various quarters, it is unlikely that all these issues will be resolved completely in the immediate term. However, with the given fiber infrastructure soon to be in place, and around 1 lakh CSCs operational in the country, it is possible to give a head start to the NOFN ecosystem and build business models that factor in these drawbacks and ensure minimum dependencies. 18 Govt approves TRAI recommendations on renewable energy in telecom sector, March 8, 2013, CXOToday.com

20 11 Creating viable business models for inclusive growth through the National Optical Fiber Network Business Models Education The Indian education sector features high on the Government s economic growth agenda. Government expenditure on education (as a percentage of total expenditure) has increased from ~10 percent in FY08 to ~12 percent in FY Specific focus has been laid on elementary education, as evident from the 23 percent increase in allocation (including State schemes and centrally sponsored schemes) for elementary education between FY11 and FY In the same period, the per-student allocation has increased from ~INR 9,400 to ~INR 11,500. Despite this increasing support from the Government, learning levels across the country have declined, as revealed by successive rounds of the Annual Status of Education Report (ASER) 21. Chart 4: Declining learning levels in rural India Percentage of all children enrolled in Std. III who can read a Std. I level text Source: ASER 2012 (Rural) Findings 19 Economic Survey Accountability Initiative and Assessment Survey Evaluation Research (ASER), Do Schools Get their Money? PAISA Report ASER, ASER 2012 (Rural) Findings

21 Creating viable business models for inclusive growth through the National Optical Fiber Network 12 Data available from the District Information System for Education (DISE) indicates that an overwhelming 83 percent of rural students attended government-run primary schools in Therefore, declining learning levels in government schools in rural India, coupled with high drop-out rates and skewed Pupil-Teacher Ratio (PTR) poses a significant challenge to human resource development in the country. Educatonal effectiveness can be improved through the use of ICT. The benefits of ICT intervention in education are already evident in various parts of India. For instance, ICT intervention in Government-run schools in Delhi resulted in ~8 percent reduction in drop-out rate and ~17 percent increase in enrolment in Class VII students. For schools without ICT intervention, the figures were around 6 percent and 14 percent, respectively. The combined impact of various ICT interventions (such as MIS implementation, online attendance, online marksheet, programmed decision on teacher transfer, etc.) was a significant increase of 375 percent in the number of schools with more than 90 percent result in CBSE Class X and XII over a three year period ( to ) 23. Exhibit1: ICT-enablement in tribal education, Andhra Pradesh With the help of ICT, the Tribal Welfare Department of the Government of Andhra Pradesh has set up a Students Academic Monitoring System (SAMS), which contains profiles of students, teachers, and parents, attendance information for students and teachers, progress cards, consolidated management information reports and dashboards, staff list, Inter and SSC Results, etc. This system is available on the website of the Andhra Pradesh Tribal Welfare Residential Educational Institutions Society (APTWREIS), popularly known as Gurukulam. The website also features information about the Gurukulam institutions, their location across the state, their achievements, budgets, important Government orders and circulars, RTI, citizens charter and contact information. This initiative is a big facilitator for the APTWREIS for achieving its objective of managing the enrollment of tribal children in schools and reducing their drop-out rates. The ICT initiative has also won the Tribal Welfare Department a National Award for e-governance in Source: 16th National Conference on e-governance, February 2013, Informatics (An e-governance publication from NIC) The private sector has also taken several initiatives towards improving the state of Indian education through ICT. Some cases in point are Microsoft India s Shiksha program and Sahaj e-village s e-learning offering, described below. Case study 1: Microsoft - Project Shiksha Proposition: In 2003, Microsoft launched Project Shiksha, which uses ICT to train teachers and students in Government-run schools. Total budget (announced at launch): USD 20 million (approx. INR 93 crore at 2003 conversion rates) Delivery mode: PPP (integrated with Sarva Shiksha Abhiyan in many states) Project partners: State governments, educational institutions, Government schools, state-run District Institutes for Education and Training (DIETs) Reach: Trained over 7,32,000 government school teachers till date (as per the Microsoft India website accessed on 31 May 2013), who in turn, have impacted over 360 lakh students across the country by imbibing the learnings in their pedagogy Business model: Non-profit (CSR initiative) Impact: 250 percent over-achievement on five year target (reach to 80,000 teachers) within four years of operation Sources: e-india ICT Event, November 2012, Microsoft India website, SSA website (Tamil Nadu), The Hindu, Microsoft India press release dated January 14, DISE, Elementary Education in Rural India Where do we Stand?, Analytical Report Compendium of e-governance Initiatives in India, University Press, 2008

22 13 Creating viable business models for inclusive growth through the National Optical Fiber Network Similarly, positive impact has been generated through the vocational training programs undertaken by various agencies. A case in point is the esiksha offering from SREI Sahaj 24. Case study 2: SREI Sahaj - esiksha Proposition: An e-learning portal (Sahaj Siksha) provided through the Sahaj network of CSCs A job portal (chaakri.in) dedicated solely to the rural population, providing placement to unskilled/ semiskilled rural youth Execution mode: PPP Content partners: Indira Gandhi National Open University (IGNOU) for certification, George Telegraph, Aptech, GAAP Education, etc. Business model: For profit Impact: Placed over 1,200 rural candidates in the profiles of front line sales force, front office managers, security guards, tailors, fitters, draughtsmen, etc., during very first year of its launch Source: SREI Sahaj e-village website, SREI Sahaj press release dated June 18, 2010 These, and the several more initiatives that are being carried on across the country, together present a compelling case for ICT implementation in rural education. The focus could be on bolstering school education as well as building skill-sets to address the significant need for rural employment. Both can be achieved by working out business models that prove attractive to all the stakeholders. 24 SREI Sahaj Website

23 Creating viable business models for inclusive growth through the National Optical Fiber Network 14 Model 1: ICT centers in Government schools set up by private enterprises This model evaluates setting up ICT centres or digital classrooms in rural Government schools to deploy engaging learning methodologies such as audio-visual modules, animation and remote learning. The real value will be derived from virtual classrooms, using which, a teacher located in an urban area (district/ block level) can conduct a class with school students located in rural schools. This is where the connectivity from the NOFN will play a major role. The job of supply, installation, maintenance of IT infrastructure and supply of learning content can be awarded to private education service providers under a Build Own Operate Transfer (BOOT) model. Some private enterprises, that have an established delivery model in urban areas, could be involved to provide such turnkey solutions. Proposition: Delivery of quality school education in rural areas through ICT intervention Figure 3: Business model for digital classrooms in government schools Source: KPMG analysis Input Connectivity: High-speed broadband access, to be made available till the Panchayat level through NOFN Training and manpower: Initial training to Government school teachers to be provided by the education service provider for a period of 3-5 years, after which, the running of the centers could be transferred to the schools Physical infrastructure: School building, power supply and power back-up (including alternative renewable energy sources such as solar power), audio-video equipment and computer terminals. Marketing: To be undertaken by the private education service provider, in collaboration with the Gram Panchayats Cost: Private education service providers to bear the cost of setting up and maintaining the ICT centers in the short-to-medium term (under a BOOT model) Capital expenditure: Interactive learning would require investment in setting up a videoconferencing facility, including a projector, microphone, screen, computer terminal and a router. Additionally, if a diesel generator set is required for power back up, incremental investment could be in the range of ~INR 3-4 lakhs 25. Operating expenditure: Equipment maintenance, staff salary, compensation to teachers in urban schools (for remote learning), and content fees (for rich-media learning material). For remote learning, scale would be of importance as the same resources can be shared across several remote locations, driving down costs. 25 NOTE: The number may vary depending on the actual equipment being deployed

24 15 Creating viable business models for inclusive growth through the National Optical Fiber Network Revenue stream: The education service provider recovers per-classroom usage fee from the school Government support: The model hinges on the beneficiary school reimbursing the per-student fee to the private education service provider, as part of a monthly contract. This could be brought under the ambit of the existing education schemes that the Government sponsors. From the experience of CSR pilots conducted by Cisco, the cost of enabling a remote learning model for one student for a year would be around INR 600. A commercially sustainable model may require a slightly higher contribution per student, but this would still be a very small percentage of the annual allocation of more than INR 4,000 per student under the Sarva Shiksha Abhiyan (Refer exhibit 2). Therefore, the possibility of channeling allocations from some of these Government schemes could be explored to enable remote learning in rural government-run schools. Benefits: Government: Improved quality, coverage and penetration of education. Lower drop-out rates expected in the long term Private education service provider: New commerciallyviable market segment Critical success factors: Viability gap funding Awareness and word of mouth Encouragement from the rural teaching force Cisco has established a price point of around INR 50 through their successful pilots conducted in Raichur, where over 2,000 students received remote classroom education in English, Science, Mathematics and Social Sciences. The project has achieved improved enrolments, attendance and student achievement. Source: CISCO Exhibit 2: Sarva Shiksha Abhiyan (SSA) and Rashtriya Madhyamik Shiksha Abhiyan Possibility of harnessing funds from the Sarva Shiksha Abhiyan (primary education) Elementary education remains a priority for the Government, accounting for 52 percent of the total allocation for education in FY Sarva Shiksha Abhiyan (SSA) is the largest primary education scheme, accounting for 67 percent of the total elementary education budget. In FY , the Government has allocated 27,258 crores to SSA, up from 7,166 crores in FY The per-child allocation from this scheme has more than doubled from Rs 2,004 per year in to Rs 4,269 per year in Utilization of these funds, however, has been on a decline (from 79 percent in FY to 70 percent in FY ). The SSA funds are categorized under the following expenditure heads - Teacher, Schools, Children and Others. This Others segment includes a component of computer education, a provision of INR 50 lakhs per district per year available to the States for Computer-Aided-Learning (CAL). Source: Budget Briefs, Sarva Shiksha Abhiyan Possibility of harnessing funds from schemes such as ICT in Schools and Rashtriya Madhyamik Shiksha Abhiyan (secondary education) The ICT in Schools Scheme, launched in 2004 by the HRD Ministry, aimed to set up 150 secondary smart schools across the country at the district level. There was a grant of INR 25 lakhs for each school and a recurring grant of INR 2.5 lakhs per year. This would enable provision of at least fortycomputers in each school. Private education providers are invited to participate using a BOOT model. The ICT in Schools program is in its third phase now. The possibility of extending such schemes to the block or Panchayat level may be considered to enable digital classrooms in secondary education. The Rashtriya Madhyamik Shiksha Abhiyan (RMSA), launched in March 2009, intends to enhance access to secondary education and improve its quality. From percent in , it intends to achieve an enrolment rate of 75 percent at the secondary level within 5 years of implementation by providing a secondary school within a reasonable distance of any habitation. The RMSA has some provisions for ICT. Out of a total of Rs 8,601.9 crores budgeted over to , about Rs 6,801.4 crores have been spent (79 percent utilization). Till December 2012, 19,641 computer rooms have been approved as part of strengthening 34,300 existing schools. Source: Department of School Education and Literacy (MHRD)

25 Creating viable business models for inclusive growth through the National Optical Fiber Network 16 Model 2: Broadband-aided vocational training delivered via CSCs Job creation and the creation of a skilled workforce are of utmost priority for rural India. However, the lack of suitable teaching personnel and other infrastructure forms a key bottleneck. Using the NOFN infrastructure, it is possible to train rural youth through e-learning content spanning important skills such as basic accounting, BPO training, basic paramedical training, computer fundamentals, web designing, spoken English courses, computer hardware engineering, etc. Advanced courses such as MS-Office, CorelDraw, Tally, etc. can also be made available. Along with training, it is also important to be able to provide placement assistance to the trainees. Unlike primary education, the willingness to pay for such courses is relatively high, and this demand-pull can be used to create sustainable business models in vocational training. One of the possible delivery models for vocational e-training could be private training service providers partnering with the CSCs to deliver such content. The infrastructure in connected primary schools can also be leveraged for this service after school hours, with some additional manpower requirement. There is no economic support required from the government in this model, but the government can lend support by endorsing or certifying some of the courses offered through this model. Such endorsement is likely to enhance the credibility of these courses in the job market, and therefore, create demand. Proposition: Skill development and employment generation through certified vocational training courses delivered remotely with the help of ICT Figure 4: Business model for vocational training and employment generation Source: KPMG analysis Input Connectivity: Fiber connectivity at the CSCs, provided as part of NOFN. As seen from the example of Sahaj, this model is already in operation and is not dependent on high-speed broadband connectivity. However, the planned 100 Mbps envisioned in the NOFN can enable richer media content and evolved services such as interactive learning Training and manpower: To be provided by the private training service provider for a limited period of time. Afterwards, the Village Level Entrepreneur can take charge, with the help of the resources that he employs at the CSC Physical infrastructure: Building/room, power supply and backup (including alternative renewable energy sources such as solar power), computers, headphones, speakers, etc. The existing infrastructure in functional CSCs or schools running remote learning programs could be leveraged for this service.