Our funding requirement would depend on the deployment strategy that we would choose to use. The various deployment strategies available are:

• Subsidy
• Self-Help Groups and/or Co-Op  Societies
• Village Level Franchising
• Bank-Financed Self-Help Groups

Deployment Strategy No. 1: Subsidy

Assume a full subsidy is provided by the AP State Govt for the BSNL registration/installation fee and for the party-line equipment.
For each gram-phone group of 4: Rs 900 for BSNL registration/installation fee + Rs 1500 for phone-set and wires etc.  Total = Rs 2400 per group of four, or Rs 600 per subscriber.
Grand Total subsidy =  Rs 600 x 1.5 million subscribers = Rs 900 million or Rs 90 crores.

Note: if the subscriber is required to pay 50% down payment (Rs 300 per subscriber) than the AP State Govt subsidy needed is Rs 45 crores.

Probable Funding Agencies for Subsidy:

NRI Foundations

World Bank

Deployment Strategy No. 2: Financing Gram-phones Self-Help Groups and/or Co-Op Societies

 

Direct Financing to Self-Help Groups

In this model, the bank lends money directly to the self-help group.  Gram-phones can be deployed using Self-Groups of various sizes (from two to eight).  From a pure economics and public good point of view, larger size groups should be encouraged because greater network coverage can be achieved from the limited capacity available at any given exchange. 
The following steps are required for financing a Self-Help Group:
a) With the help of Rural Telecom Foundation and associated agencies (BSNL, local Government), the concept of a Gram-phone is explained to the target village, and Self-Groups of varying sizes are created.
b) The Self-Group applies for a short-term loan to finance the equipment required for a Gram-phone.  The equipment is used as the security for the loan.
c) Rural Telecom Foundation supplies the equipment to the bank at vendor cost plus shipping and handling charges.  This works out to approximately Rs. 500 per Gram-phone subscriber.
d) The Self-Group either comes up with the BSNL registration fee and installation charges (Rs. 900 per group) or applies for a short-term loan for this amount.
e) At the end of the loan term, the title for the Gram-phone equipment gets transferred to the Self-Help group.
f) Maintenance and repairs for the Gram-phone will be done by the Self-Help group, but assistance will be provided by the Foundation.
g) Each Subscriber within a group comes up with a loan down payment of Rs. 200.  This is an amount to show that the subscriber is serious about getting the Gram-phone service and does not treat the service is a free give-away.
The following table shows the different scenarios for financing Gram-phone Self-Help groups:

Table 1: Gram-phone Financial Models
	Scheme A	Scheme B	Scheme C	Scheme D	Scheme E	Scheme F
No. of Households per Self-Help	4	4	4	8	8	8
BSNL Initial Fee (Registration + Installation) - Rs.	900	900	900	900	900	900
BSNL Initial Fees Financed (Yes/No)	Yes	No	Yes	Yes	No	Yes
Material Costs @ Rs. 500 per add-on subscriber - Rs.	1500	1500	1500	3500	3500	3500
Down Payment @ Rs 200 per subscriber - Rs.	800	800	800	1600	1600	1600
Loan Principal - Rs.	1600	1600	1600	2800	2800	2800
Annual Interest rate - %	15	15	15	15	15	15
Loan Term – months	36	36	36	36	36	36
Group Monthly Payment - Rs.	55.46	55.46	55.46	97.06	97.06	97.06
Per Subscriber Monthly Payment- Rs.	13.87	13.87	13.87	12.13	12.13	12.13

Financing Self-Help Groups through a Village Co-operative Society

In the previous direct financing to self-help group model, most banks might find it unprofitable to administer loans for such small amounts.  Today traditional banks are looking for loans with a minimum principal of Rs. 25,000.  In such a case the Co-operative society model could be used.  Here are the steps for using Co-operative Society financing model:
a) With the help of the Gram-Panchayat, Rural Telecom Foundation, and the local district administration, a Telephone Co-Operative Society is created in the target village.  The President, Secretary and Treasurer are elected/appointed to this Co-Operative Society.   The Co-operative Society explains the concept of a Gram-phone to the potential telephone subscribers so that Self-Groups of varying sizes can be created.
b) Based on the number of subscribers, and the number of groups, the Village Co-Operative applies for a short-term loan to finance the equipment required for a Gram-phones.  All of the equipment is used as the security for the loan.
c) Rural Telecom Foundation supplies the equipment to the bank at vendor cost plus shipping and handling charges.  This works out to approximately Rs. 500 per Gram-phone subscriber, other than what is already supplied by the Bank.
d) The Self-Group either comes up with the BSNL registration fee and installation charges (Rs. 900 per group) or applies for a short-term loan from the co-operative society.  Each subscriber pays the required loan down-payment to show that he is serious about getting the Gram-phone service.
e) At the end of the loan term, the title for the Gram-phone equipment gets transferred to the Self-Help group.
f) Maintenance and repairs for the Gram-phone will be done by the Self-Help group, but assistance will be provided by the Foundation.
Deployment Strategy No. 3: Village Level Franchising

BSNL - The Franchiser

BSNL will lease out a minimum of 25 direct exchange lines plus at least one public booth to the Gram-Phone Franchise under the following terms:

• A typical wholesale monthly rate of Rs. 25 per direct exchange line.  This rate will vary from area to area.   The average daily wage for man and a woman unskilled laborer economic indicator could be used for setting the wholesale rate.  A rough guideline would be to charge half the average daily wage per line.
• The 25 lines will be spread throughout the village so that from the end distribution point, no more than 100 meter wiring is required to the nearest house.
• Unlimited free calls within the short-distance area from 7 pm to 8 am every day
• 250 free calls per month per direct exchange line from 8 am to 7 pm.  These free calls will be distributed to the Gram-phone subscribers.  For example, if five Gram-phone subscribers share one direct exchange line, then each one will get 50 calls per month during the day time hours of 8 am to 7 pm.
• After the 250 free calls limit is reached within a month, BSNL will convert the line to incoming-calls only.
• In case the gram phone group is willing to pay a higher deposit, than outgoing facility will remain even after the free call limit is reached.

Village Operator – The Franchisee

The Village Operator can either be a local private entrepreneur or the Gram Panchayat itself.  The awarding of the Franchise will be done by BSNL.   The Franchise Operator must demonstrate his ability to come up with Rs. 100,000 capital investment through some appropriate financial institution.   (Note: Rs. 100,000 capital can cover the material costs for 200 gram subscriber lines at the rate of Rs. 500 per subscriber.)  The franchise will operate under the following terms:

• Undertake the marketing of party-lines at his own expense.
• Create a minimum 100 party-line subscribers
• Make his monthly payments to the BSNL and the Financier
• Option to operate one public phone booth
• Maintain party-lines so that they are operational 24x7 in 365 days
• Obtain his financing for the venture
• All labor costs for installing the party-lines to be paid for by the Operator

  Financial Institution Responsibility

Each state government must set up an appropriate financial institution to finance the village telephone franchise.  Technical assistance for equipment supply, last 100 meter deployment, and training will all be provided by organizations specializing in these operations.

      Franchise Financial Model

In the Financial Model shown in the table below, the Franchisee can make money only if he gets the lines from BSNL at low-rate, in the Rs 25 to Rs 50 per DEL.  It is highly unlikely that BSNL will agree to such a low rate.
Table 2: Village Franchise Model

Micro-Franchise Model	Note all amount in Rupees
	Scenario-1	Scenario-2	Scenario-3	Scenario-4
No. of Main BSNL Lines	25	25	25	40
Monthly Rental Charge per BSNL Line	50	50	50	50
Avg Party-line group size	4	4	6	5
No. of party-line subscribers	100	100	150	200
Monthly Revenue for Party-Line subscriber	25	50	25	40
One time Installation Costs Paid to BSNL:
Per Main Line Reg. + Install. Charges	200	200	200	200
No. of Main Lines	25	25	25	40
Total One-time Installation charges paid to BSNL	5000	5000	5000	8000
Equipment Costs:
Cost per extra phone set	200	200	200	200
Wire+3-minute disconnector cost per party line	300	300	300	300
Total Subscribers	100	100	150	200
Total Extra Equipment costs	50000	50000	75000	100000
Total Capital Required	55000	55000	80000	108000
Annual Rental/Interest Rate	12%	12%	12%	12%
Monthly Rental/Interest Rate	1%	1%	1%	1%
Monthly Rental/Interest on Capital	550	550	800	1080
Monthly Income
No. of party-line subscribers	100	100	150	200
Rev. per subscriber	25	50	25	40
Party-line Monthly Revenue	2500	5000	3750	8000
Public Booth Monthly Revenue	2000	2000	2000	2000
Total Monthly Revenue	4500	7000	5750	10000
Monthly Expenses
No. of Main BSNL lines	25	25	25	40
Wholesale Cost per BSNL line	25	25	25	50
Monthly charges to BSNL	625	625	625	2000
Monthly Rental/Interest on Capital	550	550	800	1080
Public Booth Monthly Dues to BSNL	1000	1000	1000	1000
Total Monthly Expenses	2175	2175	2425	4080

Deployment Strategy No.4: Gram-Phones Using Bank-Financed Self-Help Groups

The following steps are required to deploy Gram-Phones Using Bank-Financed Self-Help Groups:

• Work with BSNL to identify unused cable-pair capacity throughout the district.
• Work with BSNL to identify how many new cable-pairs can be installed in a short period of time (less than three months) at the exchange centers.  Note, laying cable-pairs at the exchange center is relatively an easy task because the distance from the subscriber to the switch is around a kilometer or less.  However, laying new cable-pairs to villages that are away from the exchange requires advanced planning, and is typically a 6 month to one year project.
• Based on the total cable-pair capacity from Step “a” and Step “b”, create the Self-Help groups if required a Village Co-operative Society. Care should be taken to create groups of at least four so that telecom network coverage increases substantially.
• If the financing option is used, then provide either direct financing to the Self-Groups, or finance the Village Co-operative society which in-turn will finance the self-help groups.  The disbursement of the loan amount should be done after the telephone applications have been approved by BSNL.

  Under-writing of Loan Loss for the Financing Model

It is difficult to predict what percentage of the Self-Help groups will default on the loans.  For Gram-phone to really take-off, the banks must make enough of a margin on the loan to cover their loss.  For the first district-wide deployment, an arrangement can be made with the lending institution to cover a portion of the loan loss.  Exact terms for underwriting this loan loss can be worked with the Foundation.  At the end of the district-wide deployment, and after a six month period, the lending institutions can fine tune the interest rates so that the loan-loss is covered by the right interest rate, and credit requirements.