Measures To Improve Telecom Penetration in Rural India TRAI
Measures To Improve Telecom Penetration in Rural India TRAI
Measures To Improve Telecom Penetration in Rural India TRAI
Paper
Seeking suggestions/comments
On
ii
about when both the operators as well as the users see a value in the
proposition.
During the last 2-3 years, all the stakeholders viz. the government, the
regulator, the telecom service providers, the vendors and content
providers have been grappling with various measures to boost the rural
telecom penetration. Every concerned part is trying its best to bridge the
telecom divide. However, in spite of sincere efforts of all the stakeholders,
desired results are yet to be achieved.
In this paper, TRAI has made an effort to bring out various constraints
coming in the way of increasing rural telecom penetration and has
suggested some of the possible strategies to overcome the same. This
paper is an invitation to all the stakeholders to participate in a collective
thinking process and come out with fruitful suggestions/ comments so
as to stimulate rural telecom penetration.
( Nripendra Misra )
iii
Contents
Chapter 1-Background……………………………..……………………………..1
Annexure – C ……Tables………………………………..……………………….64
iv
Chapter 1
Background
1.2 The last five years, have seen a phenomenal spurt in the growth in
tele-density in the country riding on the evolution of wireless
technologies, policies of Government and the Regulator. The total
subscribers as on September 2008 is 353.66 million compared to
nearly 8 million in Mar 94. However, there is a huge digital divide
between Urban and Rural. India is a vast country having an area of
about 3,287,000 square kilometers with nearly 70% of its total
population of about 1.15 billion, living in the rural areas. There are
more than six lakh villages in the country. As of September 2008,
1
the urban teledensity (No of telephones per 100 persons) was 72.47
as against the rural teledensity of only around 12.72. During the
last two decades, though several attempts have been made to
extend the benefits of the telecom revolution to rural masses but
the gap between urban and rural tele-density has widened.
1
Economic Survey 2007-08
2
full potential. Given that communication is a human need and
right, and that a strong communications network enables
commercial and social ties, it is essential that we bridge this divide
between urban and rural India.
3
1.7 Government of India had announced the National Telecom Policy
(NTP) 1994 with a strong focus on ensuring telecommunication
facilities being within the reach of all. The policy also visualized
that the universal service (universal service is the provision of
access to all people for certain telecom services at affordable and
reasonable prices) covering all villages would be achieved as early
as possible and the quality of telecom services would also be of
world class standards. It aimed that by 1997, we should be able to
provide telephones on demand and that all villages should be
covered. However, against the NTP 1994 targets, the telephone
connectivity to only 3.1 lakh villages (out of total six lakhs) could
be achieved by 1997.
1.8 While evaluating the outcome of NTP 94, the Government of India
recognized that the provision of world class telecommunications
infrastructure and information is the key to rapid economic and
social development of the country. It was critical not only for the
development of the Information Technology industry, but it also
has widespread ramifications on the entire economy of the country.
Accordingly, a comprehensive and forward looking
telecommunications policy which creates an enabling framework
for development of this industry and, of the nation as a whole was
put in place in 1999.
4
rural areas, making rural communication mandatory for all fixed
service providers, making it more affordable by suitable tariff
structure. NTP 99 sought to achieve the Universal Service
Objectives of provision of Voice and Low speed data service to the
balance 2.9 lakh uncovered villages by the year 2002, and achieve
telephone on demand in urban and rural areas by year 2002. It
aimed at increasing the rural teledensity from 0.4 to 4 by the year
2010 and to provide reliable transmission media in all rural areas.
It is worthwhile to mention that the rural teledensity of 4 has been
achieved in the year 2006-07 itself and the rural teledensity as
on September 2008 is around 13. The year wise growth of rural
tele-density is given in Table below.
5
The quarterly net subscriber additions and growth rate of Rural and
Urban Wireless Subscribers is given below:-
Figure 1- Quarterly Additions of Rural and Urban Wireless Subscribers.
8.00 8.74
10.06
8.55 8.51
6.58 8.24
4.00 6.75
4.53 4.26
4.00
0.00
Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08
Quarterly Growth Rate of Rural and Urban Wireless Subscribers (Growth Rate in % age)
30
25 26 19 28
22 21 19
18
20
(in % age)
13
14
15
10 14
14 12 12
5 10 10 9
7 4
0
Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08
Rural Growth Urban Growth
1.10 NTP 99 also provided that the resources for meeting the Universal
Service Obligation (USO) would be raised through a ‘Universal
Access Levy’ (UAL), which would be a percentage of the revenue
earned by the operators under various licenses. The details of the
activities of the Universal Service Obligation Fund (USOF) are
6
covered in chapter 4.
1.12 The last decade or so has seen a rapid increase in tele density
largely as a result of liberalization of the telecom sector and
creation of a market through appropriate policy and regulatory
measures. These measures led to the achievement of price levels
where the cost benefit ratio suited large masses of urban
population. On the supply side the service providers ensured rapid
growth of the network capacity to handle the increase in the
subscriber numbers ensuring that a clear business case was
established for them. In order to bridge the growing digital gap
2
Source: DoT website
7
between the urban and rural India, it is necessary that a similar
growth equation is created for rural India, both for the service
providers as well as for users. However, unlike the urban masses
who were familiar with the telephone even prior to liberalization,
the majority of the potential hundred million new rural subscribers
will be first time users and therefore, special efforts through
awareness programme customized value addition, innovative
marketing & pricing will be required so that they identify the
telephone, as being in the category of other basic amenities like
water, electricity, road etc.
1.13 To achieve this dream, all the stakeholders viz. the government,
operators, equipment vendors and various local bodies would need
to collaborate and work closely. At stake are several thousand
crores of rupees in annual revenue- and significant growth and
development. To quote from a market report “In 20 years the rural
Indian market will be larger than the total consumer markets in
countries such as South Korea or Canada today, and almost four
times the size of today’s urban Indian market. The estimated size
of the rural market will be USD577 billion.”3
3
McKinsey & Company, The bird of Gold: The Rise of Indian Consumer Market , McKinsey Global
Institute, May 2007
8
marketing, and distribution channels. They will also need to
change their products.
1.16 For boosting rural telecom penetration, TRAI has taken a lot of
initiatives like recommending bringing mobile services under the
ambit of USOF, sharing of infrastructure to receive support from
USOF, relaxation for deployment of towers upto 40 m in rural
areas, discount in USO levy after sufficient coverage, supporting
backbone infrastructure through USOF etc. The details of
initiatives taken by TRAI and various NGOs, other bodies in India
and internationally to promote Information & Communication
Technology (ICT) in rural and less developed regions have been
chronicled in the Annexure- A & B.
9
Chapter 2
Present Status
10
rural subscribers in the proposed target by taking stock of
available resources which can be harnessed to achieve our goal.
4 Census commission
5
http://india.gov.in/outerwin.htm?id=http://districts.nic.in
6
http://www.aptsec.org/meetings/2003/seventh-ASTAP/ASTAP03-FR07-PL-15_TEC-
Mr.N.K.Mangla.ppt#258,16,
7
http://gov.ua.nic.in/NScheduleData/nv02.pdf
8
http://demotemp257.nic.in/httpdoc/Census_Data_2001/Census_data_finder/A_Series/Number_of
_Village.htm
9
http://www.rggvy.gov.in/rggvy/rggvyportal/index.html
10
Economic survey 2007-2008 Page no. A-121
11
www.indiastat.com
12
http://www.indiapost.gov.in/Report/annual_report_2007-2008_final.zip/
13
http://www.indianrailways.gov.in/deptts/stat-eco/statistical-stmt-0607/st-9b.pdf
14
http://bprd.nic.in/writereaddata/presentation/File13.ppt#269,21
15
https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
16 http://www.censusindia.gov.in/Census_Data_2001/India_at_glance/literates1.aspx
17 http://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=311
11
Table 3 - Telecom Resources (as on September 2008)
2.3 Following are the specific key issues which needs to be deliberated
for formulating the strategy for promoting telecommunications in
Rural India:
Ø Should voice penetration be given priority to attain desired/pre-
decided level and then push data or should both be taken up
simultaneously?
12
Ø The technological solutions to be adopted to provide voice and
broadband at affordable rates? How should adoption of such
technologies be promoted?
Ø What would be the most effective business model for rural India?
2.6 As per the data submitted by the service providers, there are
already 106518 rural BTS, of which around 29723 are reported to
be shared by more than one operator. After taking into account
the installation of mobile towers targeted in the Phase I & II
scheme of USOF (table 8), there will still be a requirement of an
addition of around 11250 towers in the next two years in order to
reach the desired target of additional 90-100 million rural
subscribers.
13
Broadband target:
2.7 In May 2006, the Government announced its intention to provide
broadband facility to all public health centers and all secondary
and higher secondary schools by 2007. All Grampanchayats are
also targeted to be covered by 2010. Though no perceptible
progress has taken place till date, however, for defining the
broadband target for 2010, we may include all schools-from
primary to higher secondary, public health centers, police stations
and post offices and branches of all rural banks. As all these
institutions touch the life of a villager in some way or the other,
therefore this target apart from providing a guaranteed market for
the service providers, shall also act as a catalyst for the rural
masses to go for individual broadband connections in the future. A
rough estimate of the number of all these institutions translates
into 1,706,208 broadband connections (Table 9).
14
availability of voice connection amongst his friends and relatives
and occasionally with the Govt. officials in the Tehsil or Block
Headquarters and Mandi may not be enough incentive for him. The
mobile handset has to become a multipurpose instrument
providing him entertainment, news, education, connectivity as well
as a means to promote his financial and business interests. Radio
and Television are popular with rural masses largely because they
provide range of entertainment to the user. In the case of
Telephony too, there is a need to provide other value added
services viz. education, entertainment, tele-medicine, banking,
IPTV etc. Some of these services can be provided through text
messaging. However, in order to make up for the slow pace of
development in the past and offer range of usage/application, it is
necessary that both voice and broadband go hand in hand as far
as strategy for rural India are concerned. Taking wireless as the
preferred media to provide both the services, it can be safely
assumed that basic infrastructure (in the form of mobile towers
and the backhaul connectivity of the tower with BSC and the
routers/servers) have been the main stumbling blocks for the
proliferation of these services. Fortunately, today the same
infrastructure can serve the major technologies providing all these
services.
2.9 Along with the mobile phone and broadband connectivity, data
based application services meeting the daily requirement of the
villager will also need to be developed. Information can be a
powerful economic leveler, and for many of the next 100 million
new subscribers, the mobile handset and broadband will be the
best vehicle for accessing it. In India the National Commodity &
Derivatives Exchange, has launched a text–messaging alert
services for farmers to track agricultural and commodity prices.
15
Recently a pilot project called Fisher Friend project has been
launched in Tamilnadu and Pondicherry that enables fishing
communities to earn their livelihood in a safe and proactive
manner by leveraging 3G CDMA wireless and ICT technologies.
Vital, real-time information is available to fishing communities
anytime, anywhere at the press of a button. The project provides
access to a menu of services uniquely focused on fishing
communities including sophisticated technical information (e.g.,
sea wave heights, satellite scan data about fish shoals) which is
processed to make it usable to non-technical users. Other, more
ambitious projects are under way elsewhere. Internationally, to cite
an example, in China, last year, one of the operator, China Mobile
Communications, a wireless carrier, launched an integrated
package that consisted of text-messaging services, voice services,
and an Internet portal for rural areas. Farmers and fishermen can
access the service to get weather forecasts, price information, and
employment opportunities outside the agricultural industry. By
the end of October 2006, the service had more than 12.7 million
subscribers and daily traffic exceeding 1.6 million messages,
40,000 visits to the Internet portal and 20,000 voice calls18. New
forms of mobile banking and commerce are the most obvious
candidates to emerge in this realm. Rural India is primarily a cash
economy because majority doesn’t have bank accounts or access to
other payment methods, the mobile handset can help make
sophisticated banking and payment services available.
18
Ringing in next Billion Mobile Consumers- BCG Report
16
Chapter 3
3.1 In order to find ways and means to further accelerate the process
of penetration of rural telecom, the Authority held a seminar on 6th
June 2008 in New Delhi. The Seminar was primarily focused on
identification of the impediments in the way of growth of telecom
services in rural areas, the measures required to be taken to
remove them and also to enthuse the service provider for the need
to accelerate their foray in rural areas.
Acquisition of Land
3.3 The first major hurdle in the proliferation of towers in the rural
areas is that acquisition of land for BTS takes very long time. In
large number of the cases, as the land belongs to either forest
deptt/tribal areas or gram panchayats, the formalities required to
be completed for taking the land on lease or outright purchase
takes a long time and involves lot of effort.
Right of Way
3.4 In the rural area, for providing backhaul connectivity, if fibre or
cable is to be laid then even though the laying is along kuchha
roads or through forest, but as the route involves jurisdiction of
multiple state and municipal agencies / panchayats, therefore to
coordinating different agencies and getting the requisite permission
17
is time consuming. These state agencies involved in the process
takes a long time in granting the right of way and have also started
charging exorbitantly higher amount for the permission for the
laying.
Backhaul connectivity
3.5 Unavailability of cheap and fast backhaul connectivity is one of the
major hurdles in faster proliferation of telecom in rural areas.
Unlike urban areas where optical fibre is largely deployed to
provide the backhaul connection, about 80% of the rural BTS are
on microwave system. Though, at many places OFC connectivity
has been provided but the provisioning cost is prohibitory high and
as discussed subsequently, providing backhaul using the satellite
link is a cumbersome process.
Power Supply
3.7 In a number of villages the power supply is either not available or
is available only for few hours. As a result even if battery back up
is provided for the BTS, due to availability of electricity for a very
short duration, the batteries are not able to get fully charged.
Further due to frequent interruption of power supply the life of
these batteries get shortened which in turn increases operational
18
cost to run services in rural areas. Unavailability of reliable power
supply in semi-urban, rural and remote areas increases
operational costs further because sufficient backup systems have
to be maintained. As per the statistics, out of 5,93,731 inhabited
villages (as per2001 census), 4,73,136 (almost 80 % ) have been
electrified upto March 2008. The remaining villages are to be
covered by 2009 as per Bharat Nirman Programme under Rajiv
Gandhi Grameen Vidhutikaran Yojna. However, in practice, the
frequent and long interruptions in the electricity supply put a large
number of these villages at par with the non-electrified ones.
19
from subscribers in these areas and also the paying capacity being
lower than in urban areas tariffs would also have to be kept at very
reasonable levels. Until the Mobile Phone proves its utility to Rural
India and a critical mass of subscribers and traffic is achieved
Service providers would require incentives/support for venturing
into these “non renumerative areas”. As on date, Urban India and
the semi urban centres are still providing sufficient growth
opportunity to mobile Operators and there is adequate demand in
urban areas and therefore there has not been any reason for
Operators to penetrate into the rural India.
Affordability of Services
3.10 Though the provisioning cost of telecom services has come down
significantly in India, however in terms of purchasing power of
individual, these are still high particularly in terms of cost of the
end equipments i.e. Cost of handsets, Modem, PC, UPS etc. As a
large proportion most of the rural population is having low income,
the present cost of telecom services is still prohibiting to them.
20
understandable by the local people. All the support and incentives
offered for rural penetration would be of consequence only if the
content provided is relevant and usable. It is therefore, of utmost
importance that the contents developed should be in the
vernacular language and the application software should largely be
menu driven and graphic as far as possible in order to overcome
the issue of illiteracy. In absence of these, there will be lack of
demand generation in rural areas, leading to a failure of the entire
initiative.
21
3.13 Although studies say that there is direct relationship between the
telecom penetration nd the growth in economy, yet it is very
difficult for the illagers to perceive how the spending of hard
earned money on telecom will help them to boost their earnings.
22
Chapter 4
USO Fund
4.1 The Universal Service Support Policy came into effect from
1.4.2002. Subsequently, the Indian Telegraph (Amendment) Act,
2003 giving statutory status to both Houses of Parliament passed
the Universal Service Obligation Fund (USOF) in December 2003.
The Fund is to be utilized exclusively for meeting the Universal
Service Obligation and the balance to the credit of the Fund will
not lapse at the end of the financial year. Credits to the Fund shall
be through Parliamentary approvals. The resources for
implementation of USO are raised through a Universal Service Levy
(USL) which is presently charged @5% of the Adjusted Gross
Revenue (AGR) from all Telecom Service Providers except the pure
value added service providers like Internet, Voice Mail, E-Mail
service providers etc. In addition, there is a provision for grants
and loans by the Central Govt.
4.2 Universal Service Obligation Fund is headed by the Administrator,
USOF. His responsibilities include formulation of procedures for
selection and approval of projects, disbursement from the fund and
the overall implementation envisaged under USO to expand rural
telephony. The Office of USOF Administrator functions as an
attached office of the Department of Telecom, Ministry of
Communications and IT. The pros and cons of this arrangement
has been discussed separately.
4.3 On 30.10.2006, an Ordinance was promulgated to amend the
Indian Telegraph Act, 1885 so as to enable support for mobile
services and broadband connectivity in rural and remote areas of
the country also from the USOF. The ordinance was subsequently
regularized by passing an Act on 29.12.2006 as the Indian
23
Telegraph (Amendment) Act 2006 to amend the Indian Telegraph
Act, 1885.
4.4 USOF Activities19: As per the Rules, the following services shall
be supported by the Fund, namely:-
Provided that in the case of the Village Public Telephone which are
still to be installed in the villages identified as per Census 1991,
Capital Recovery shall also be taken into account while
determining the Net Cost;
19
http://www.dot.gov.in/uso/usoindex.htm
24
(c) Replacement of Multi Access Radio Relay Technology
Village Public Telephone installed before 1st day of April 2002.
- Capital Recovery, Operating Expenses and Revenue shall be
taken into account for determining the Net Cost.
25
(iii) Stream-III: Creation of infrastructure for provision of
Mobile Services in rural and remote areas:
26
(vi) Stream-VI: Induction of new technological developments
in the telecom sector in rural and remote areas
2008-09 - 352.08
(As on 30.9.08)
Total 20404.44 6723.52
27
4.6 In order to evaluate the impact of USOF in rural areas, the details
of physical and financial progress is given below:
28
(c) Under Stream-I it was also envisaged that villages with
population of more than 2000 would be provided with second
public phone in case public call office is not existing. The
disbursement in this category is Rs. 97.36 crores from 2005-06
to 30.09.08.
(d) Replacement of Multi Access Radio Relay (MARR) related
technology- In villages where public telephones were installed
using MARR technology prior to 1st April, 2002, the USOF
decided to fund the replacement of MARR technology to WLL
technology. The total number of identified phones was 186872.
It was later revised to 182766. The replacement has been
reported for 180909 leaving a balance of 1857. The total fund
disbursed under this head was Rs. 685.67 crores.
Thus total sum of Rs. 1605.92 crores was utilized under Stream-I
which is 23.89 per cent of total disbursed fund. It may be
appreciated that under Stream-I, no expansion of rural telephony
in real terms was undertaken. It was basically revamping of the
existing facility/technology. Only a provision of second public
phone in villages having a population of 2000 could be interpreted
as additional telephone capacity creation.
29
Stream III – Under the stream III, in Phase I, the USOF had
identified areas in 500 districts spread over 27 states, where there
is no existing fixed wireless or mobile coverage. For providing
mobile coverage in these areas, the USOF launched a scheme to
provide subsidy support for setting up and managing 7871
number of infrastructure sites (towers) in these identified rural and
remote areas. The infrastructure so created was planned to be
shared by three service providers for provision of mobile services
including other Wireless Access Services like Wireless on Local
Loop (WLL) etc. The agreements effective from 01.06.2007 were
signed with the successful bidders in May 2007. Mobile service
through these shared towers was targeted to be made operational
in a phased manner by May 2008.
30
Table 5- Service Provider wise breakup of commissioned towers.
31
development shall be determined by the Central Government from
time to time. To begin with, a plan has been prepared to augment
the OFC network between the Block HQs and the District HQs for
creation of general infrastructure for development of telecom
facilities. M/s TCIL has been entrusted with the work of compiling
the details of existing network set up by the Service Providers and
to identify where the OFC network is to be set up in rural areas.
The beginning has been done from North-East states
32
mobile towers. Presently, in the USOF scheme, incentive is
allowed to only one operator in an area. If the aim is to encourage
as many operators as possible to go into rural areas, then there is
a strong case for doing away with this condition of restricting
subsidy for installation of mobile tower to only one operator.
* Allowing subsidy to any service provider who installs the tower
in the identified SDCA shall induce competition amongst the
operators as each one would want to have the first mover
advantage.
4.8.3 Presently, the locations of the towers are identified by the USOF.
Many service providers have opined that the choice of the location
where the tower needs to be installed should be left to them. As
there is a large gap between the capex required to erect towers and
the average subsidy amount being given for the same (as per
Phase-I), therefore, it can be argued that once the rural SDCAs
have been identified where the mobile infrastructure needs to be
installed, then the choice of location and the number of towers
required in that area should be left to the discretion of the service
providers. In view of the large gap, no operator would set up a
tower just for the sake of subsidy.
4.8.4 One major lacuna in the scheme is that there is no support for
providing back haul between the BTSs and the BSC.
* As is discussed subsequently in this Paper, there should be a
separate facility based operator, who should be funded by the
USOF and should be entrusted with the work of providing the
fiber connectivity between the block head quarters upto the
village Panchayat headquarters and then the same should be
available to the licensed operator free of cost for at least 3-5
years.
33
4.8.5 To summarize, for expediting the infrastructure support in
rural area, for the mobile and broad band services, the USOF
should do away with the bidding process and only concentrate
on planning and monitoring of the implementation of the
scheme. Based on the experience of Phase-I, it should
determine the subsidy support for setting up towers in
different regions and any IP-I/CMTS/UASL operator, who sets
up the tower in designated SDCAs should be paid subsidy,
irrespective of whether the tower is used by one operator or
more than one.
4.8.6 Some of the issues discussed above have already been raised by
TRAI in its letters to USOF and Secretary, DoT. These letters are
attached at Annexure D
34
by the service providers, about 75-80% of their rural BTSs have
microwave as the backhaul. Unlike spectrum for access service,
spectrum for microwave is charged on number of links and in view
of large distances in rural areas, the spectrum charges become
considerable.
* It is feasible to defray the charges for spectrum used for
providing microwave backhaul for rural BTS.
4.9.3 Though this could provide short term solutions to the immediate
issues, in the long term, the bandwidth provided by Microwave or
VSAT will not be sufficient to cater to the bandwidth hungry
applications like entertainment, tele-education etc. For these
applications an optical fiber network is required to be available
upto the mobile towers. Currently around 6.7 lakh route
kilometers of optical fiber is present across India. Out of the
existing 29000 rural exchanges of the incumbent (BSNL) in the
country, majority of them (around 70%) have OFC connectivity.
35
However, majority of this connectivity has very low bandwidth (8
Mbps) and therefore can not be shared.
* This bandwidth should be upgraded to STM-1 by USOF and
BSNL should be mandated to share at least 2/3rd of the
enhanced bandwidth with other service providers.
4.10.2 Accordingly, the DoT vide its letter no. 20-100/2007-AS-I Dated
1st October 2008 had issued amendment to the Basic, CMTS and
UAS Licenses regarding the annual license fee. As per this
36
amendment, any licensee who covers 95% of the development
blocks in a service area shall be eligible to get a reduction of 2% in
its contribution to the USOF i.e. instead of 5%, the licensee will
pay 3% of the AGR as its contribution to the USOF.
37
the Finance Ministry has clarified that the lower provisions have been
made taking into account the past performance. Once the funds are
placed at the disposal of Administrator, USOF, the Wing of DoT
dealing with the Accounts and Finance headed by Member (Finance)
could provide necessary administrative support.
4.11.2 With this kind of a broad based approach and constitution of the
USOF the role of the USOF would also need to be recast.
38
preceding chapters, going forward as we try to bridge the digital
divide the role and area of functioning of the USOF has to
change. Unlike the Urban population which is exposed to
international/global issues and enjoys global entertainment, is
comfortable accessing content which is international in flavor, in
Rural India there will be a need to ensure that there is a strong
local content available. The success of any scheme in Rural India
would depend upon the immediate relevance that it has to the
everyday life of the people. The present content accessible may
not really meet the requirements of the local people.
* In order that the penetration targets are met, in terms of
both telephones as well as broadband, there is a need to
develop local content in local languages.
The telephone and internet will become meaningful to the local
people once the offering adds value to their lives.
39
* The development of local content needs to be area specific
and should address the local, immediate, needs of the people.
This brings us to the question regarding the very structure of
the USOF.
40
Chapter-5
Possible Strategies
5.1 As per the data provided by the service providers, around 407112
villages are having mobile coverage i.e. about 69% of villages are
having the coverage. Taking around 180 million as the targeted
rural subscribers in the country, as on Sep 2008, there are 90.76
million rural subscribers. Therefore, there is a need to plan for
converting an additional 90-100 million population as subscribers.
5.2 The strategy for increasing the telecom penetration in rural areas
can be classified in two categories:
41
Affordability of Services
5.4.1 Lowering the cost of the handsets Although the service providers
do not have direct control over handset costs, they can and should
work with manufacturers to ensure that handsets are both
economical and practical for the rural consumers. The following
practices, some of them already in use, will help bring costs down
as well as impart additional usefulness to – handsets:
• Evaluate the design and specifications of handsets to
ensure that they meet the needs of the rural masses and
do not contain extraneous features that push up their cost.
Electricity is unavailable in a number of villages; therefore,
the handsets should have long-life batteries, built in
flashlights and capability to charge the batteries from
alternate sources such as tractor batteries and generators.
• Reduce complexity – and subsequent servicing costs – by
relying on standardized keypads, screens, and other parts.
• Bundling of handsets— A large number of the rural
population does not have a steady employment, therefore
there is a need to lower the upfront cost of mobile
acquisition. This can be achieved by bundling the hand set
along with the connection or offer handsets on an
42
installment plan that increases over a period of time along
with the benefits to the user. In large number of countries, it
is a normal practice. However, in India, as the annual license
fee is on the AGR of the service provider and the cost of the
handset is also taken as a part of the AGR, therefore the
service providers are not too keen to bundle the hand set
along with the connection.
USOF should look into this aspect and in consultation
with DoT should devise a scheme for setting off the cost
of the bundled handset provided to rural subscribers
from the AGR.
43
a) A safe place to keep money
b) Accessibility / liquidity – The ability to turn electronic money
into hard cash and vice versa at convenient locations (agents
/ ATMs)
c) Ability to transfer money – to and from the financial
institution, to make payments and to remit money to friends
and relatives.
5.6.1 Similarly in India also due to high cost of operation, a large portion
of rural population does not have access to basic banking facilities.
RBI is working on formulation of guidelines to use mobile banking
to create a system of financial inclusion to reach out to the
unbanked population of the country. Primary objective of this
model is to offer or give access to basic banking facilities to the
unbanked and rural population by means of an easy to access
affordable delivery channel i.e. mobile phone.
* The banking sector with active participation of the telecom
service providers acting as the delivery channel should try to
proliferate this facility as far and as deep as possible as this
will be the major catalyst for the rural masses to subscribe to
the mobile phones.
44
offering, however, they could find themselves on the verge of
explosive growth resulting from a confluence of factors.
Ø The growth of mobile subscribers is outpacing the growth not
only of banking customers but also of personal computers and
internet users.
Ø Many telecom consumers have few links to financial
institutions. As a result, telecom providers will not have to
battle incumbents head on to win the banking business of
many subscribers.
Ø Mobile banking will boast much lower costs and greater
convenience than traditional banking products, making this
option economical and attractive for both users and providers.
Ø India’s vast market presents an opportunity to create
unparalleled scale, which telecom companies could use to pry
open other emerging markets – and eventually enter developed
markets. If it were to launch a comprehensive mobile banking
product, a pioneering telecom player could transform the
landscape of retail banking not only in India but also around
the world.
5.6.3 Recently the Reserve Bank of India (RBI) has issued the guidelines
for mobile banking (Annexure E).
5.7 Overcoming the language barrier The literacy levels are very low
in rural India. Majority of the handsets are in English.
* There is an urgent need to use the local language in the mobile
handsets.
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recharging: Rural post offices should be allowed to work as
customer outlets for the telecom companies.
• A major hurdle in the expansion of Telecom Services to Rural
India (as reported by the service providers) is non availability of
skilled and trained manpower.
* Local schools and community centers can provide the training
needed to help local residents and businesses in rural areas
and take advantage of new information technology.
5.8.3 As the DoT tries to make greater inroads into Rural India through
the USOF and attempts to increase the teledensity there, to close
the gap between Urban and Rural Teledensity numbers, the Post
Offices and the infrastructure and experience of the Dept of
Posts in the remotest parts of the country could become of
great value in helping the DoT achieve its targets.
5.8.4 The Dept of Posts has a presence in every corner of the country.
The Postman is a known and recognized entity in even the smallest
of human settlements. He personally knows every resident of his
Beat, and in smaller towns/villages, probably is familiar with the
people, their financial status, their needs, and requirements for
communication services based on the letters / money orders being
46
sent/received. In areas where the literacy rates are low the
Postman is often the letter writer and the letter reader and is
therefore familiar with every aspect of the villagers’ lives. In
addition to the fact that the Postman knows the needs of the
people in these far flung areas, there is also the fact that he in turn
is a well respected person, and by virtue of holding a position in
the Government, is seen as reliable and responsible person.
* The Postman can therefore be effectively used to educate the
potential Customers and First-Time Users about the uses and
benefits of the Services being offered. Also, there can be no
better system for address verification and credit verification
than the Postal Dept and more specifically the Postman
himself. No agency can claim a similar level of familiarity with
the Local residents and this knowledge that the Postman has
built over many years of doing his Beat can never be
replicated. This makes him the ideal agency for any kind of
verification.
As far as DoT is concerned, verification by the DoP is the ideal
verification- the Postman being highly dependable, being a Govt
employee himself, or having a close linkage with the Govt (in case
of Extra Departmental Post Offices).The Department of Posts can
be compensated on mutually agreed rates based on Marginal
Costing.
47
Offices.
5.8.7 Over the last few years the Dept of Posts has also started looking
for new Revenue Streams in line with the Govt of India’s objective
to reduce budgetary support to zero. Partnering the DoT and the
USOF in the effort to increase Teledensity in Rural India would be
a unique opportunity for the Dept of Posts (DoP) in addition to
earning additional revenue for reducing its budgetary deficit.
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be permitted to operate services using the Mobile Network
Operator (MNO) infrastructure. MVNO will be required to pay an
entry fee and licensed fee including USO fund contribution.
5.10 While liberalizing the access segment, post NTP 1994, specific VPT
roll out obligations were specified in the licenses. However, these
commitments remained largely unmet. At that stage, the markets
were in nascent stage and service providers main interest was on
lucrative segments. Today when the markets are mature with some
segments reaching saturation levels, perhaps there is a case for
regulatory expectation of rural roll-out obligations in the access
segment.
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Annexure - A
50
• TRAI is of the view that in the interest of growth of such services,
WPC spectrum charges on VSAT should be lowered. It is therefore,
recommended that there should be a single rate of WPC fee and
the present ceiling of 4% should be lowered to 1% to cover
administrative charges only.
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Niche Operators
To increase penetration of telecom services in rural / remote / backward areas from
telecom point of view, Authority recommends that SDCAs where fixed rural tele density
is below 1% shall be area of operation for Niche Operators. Niche Operators shall be
permitted to offer fixed telecom services including multimedia, Internet telephony and
other IP enabled services only in these SDCAs. These operators shall however, be
permitted to use wireline/fixed wireless networks. This definition of niche operators shall
be reviewed depending upon market conditions and development of various technologies
and various applications. (TRAI recommendations on Unified Licensing dated 13th Jan
2005)
• Since spectrum in the 450 MHz band is allocated mainly for rural
deployments, the roll out obligations in this band could include specific
conditions to ensure that rural areas are covered by the operators. For
the operators in the 450 MHz band, the roll out obligations should be as
follows:
52
• For BWA spectrum, the Authority recommended the following
roll out obligations:
53
• The mobile tower design should have capacity to accommodate at
least three service providers to be eligible for availing subsidy
under the proposed license. The passive infrastructure has to be
created within one year from the date of registration with USOF
administrator to make him eligible for subsidy. No subsidy shall be
paid if such infrastructure is not setup to roll out mobile services
within one year.
• The service provider/infrastructure provider Category I who is not
beneficiary under USOF scheme, erects the tower and share it with
three service providers (Not beneficiary of USOF scheme in that
SDCA) to roll out mobile services shall also be entitled to subsidy
from USO Fund equal to 80% of the amount decided under USOF
scheme based on the bidding process, from the date of roll-out of
mobile service using this tower.
• If only two service providers not being beneficiary in USOF scheme,
share newly erected tower and roll out mobile service, then amount
of subsidy payable from USO Fund to service
provider/infrastructure provider Category I who erects the tower
shall be proportionally reduced compared with amount when tower
would be shared between three service providers.
• No subsidy shall be paid if newly erected tower is not shared. This
is to encourage concept of infrastructure sharing in rural and
remote areas.
• The burden of having mutual agreement for sharing passive
infrastructure would be left to the infrastructure provider category
I/ service provider who is setting up passive infrastructure. The
need is not only to encourage creation of such towers but it has to
be achieved within a specified time frame. To ensure this, an
infrastructure provider Category I or service provider who is not
beneficiary of USOF scheme has to register with USO fund
54
administrator along with commitment letters from other service
providers (Not beneficiary of USOF scheme in that SDCA) who wish
to share the tower. The passive infrastructure has to be created
within one year from the date of such registration to make him
eligible for subsidy.
• A scheme based on the framework envisaged above would be
needed to support erection of towers in rural areas not covered
under USOF scheme. This will provide level playing field, enhance
competition and extend better mobile services in rural areas.
• DoT to evolve a policy to promote the use of non conventional
energy sources and a scheme of subsidy per BTS site to service
providers using such energy sources.
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De-licensed bands should be technologically neutral. This is in
keeping with current trends in international spectrum policy.
• It is recommended that no spectrum fee shall be levied on the
usage of CorDECT and similar other technologies in rural/remote
areas. Microwave links/any other wireless connectivity in rural
area should not be charged any spectrum fee.
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Annexure - B
ITC e-Choupal
n-Logue
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DakNet11
The Gyandoot project was started with the installation of a low cost
rural Intranet covering 31 village information kiosks in five Blocks
of the district. Villages that function as Block headquarters or hold
the weekly markets in tribal areas or are located on major roads
(e.g., bus stops) were chosen for establishing the kiosks. Each
kiosk caters to about 25 to 30 villages. Each kiosk was expected to
earn a gross income of Rs. 4,000 per month.
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Rural “e-Seva” (in east Godavari District of A.P.)
The project is a tool to bridge the digital divide in the rural areas
and has used Information Technology for providing access to
various services to the people living in rural areas. Under this
project web enabled rural kiosks termed eSeva centres have been
established at the mandal (a sub district unit of administration)
level. The project is based on BOOT (Build Operate Own Transfer)
Model.
Fisher Friend
All the states are developing their own state wide area networks ,
popularly known as SWANs. The current status is as below :
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International Experience
USA:
The FCC (Federal Communication Commission) has taken some
steps to encourage the deployment of advanced telecommunication
services to rural communities. Some of its program are discussed
below:
60
Apart from FCC, the Rural Development Telecommunications
Programs at the USDA (Department of Agriculture of USA) offer
a wide array of Loan and Grants designed specifically to
facilitate the construction and deployment of advanced, high-
speed telecommunications and data networks in rural America.
Malaysia
• e-Bario Project
• e-Taninet Project
Kenya
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get some support through linkages and ICT. To develop this
network help from various telecom operators was taken.
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mobile phones to the villagers. Grameen Telecom holds 35% share
of GrameenPhone Ltd., the company which was awarded a
nationwide license for GSM 900 cellular mobile phone services.
Grameen Bank provides necessary organizational & infra-
structural support to Grameen Telecom towards selecting the
Village phone operators from amongst its members and also by
collecting the phone bills.
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Annexure - C
Tables
Table 6 - Rural vs Urban Telecom Statistics ( As on June 08 )
Andhra
966920 1684938 5934383 16681669 59833291 22809376 11.53 80.52
Pradesh
Tamil Nadu 822476 2961801 4799798 22719697 32437783 35120884 17.33 73.12
Uttar Pradesh
including 640220 2157357 10008466 22726341 153484162 43018035 6.94 57.84
uttranchal
Himachal
321763 82691 1532259 891395 5909279 708055 31.37 137.57
Pradesh
Bihar including
499690 916771 2916892 10318705 107566850 16854817 3.18 66.66
Jharkhand
North East 96451 238144 424164 1907337 10282455 3085211 5.06 69.54
Jammu &
46462 202002 671412 1781645 8334979 2974355 8.61 66.69
Kashmir
All India 11329136 24867392 70831056 216034672 806160391 343934943 10.19 70.04
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Approximate Coverage of Mobile and Electricity in Rural
Table 7- Approximate Coverage of Mobile and Electricity in Rural ( As on March 08 )
Total No.
DHQ Villages Villages
Total No. of % Rural % rural
State / Service Covered Covered Covered
Sr No of inhabited Electric Mobile
Area by by by
Districts Villages coverage coverage
Mobile Mobile electricity
(2001)
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Table 8 - Towers required for rural area
Calculation of towers required for Rural area in 2010 (All figures are in million)
Assuming Urban
5 Total urban 244 321 teledensity 90 % in
2010
total - urban
6 Total rural 43 179 ( Rural teledensity will
be 21.5 % )
Assuming no net
8 Rural wire line 12 12
decrease
Assuming no net
9 Urban wire line 28 28
decrease
total urban - urban wire
10 Urban wireless 216 293
line
wireless total - wireless
11 Rural wireless 71 167
urban
Total Projected Rural Wireless Additions from Jun 2008 to 2010=167-71=96 million
Assumption-35.5 million (Half of June 2008) rural wireless subscriber will be added
by sharing present rural towers
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Total additional BTSs required for Assuming 1000
60500
Rural areas subscriber per BTS
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Table 9 - Targets
Targets
Target for Mobile Wireless subscribers
a Total Population 1,150 million
b Rural Population 805 million
c Approx.Rural House holds (Average 179 million
4.5/ household)
d Present rural wireless subscribers 91 million
e Target rural wireless subscribers (c-d) 88 million
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Annexure D
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72
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Annexure E
1. Introduction
1.1 Mobile phones as a medium for extending banking services have off-
late been attaining greater significance. The rapid growth in users and
wider coverage of mobile phone networks have made this medium an
important platform for extending banking services to customers. With the
rapid growth in the number of mobile phone subscribers in India (about
261 million as at the end of March 2008 and growing at about 8 million a
month), banks have been exploring the feasibility of using mobile phones
as an alternative channel of delivery of banking services. Some banks
have started offering information based services like balance enquiry,
stop payment instruction of cheques, transactions enquiry, location of
the nearest ATM/branch etc. Acceptance of transfer of funds instruction
for credit to beneficiaries of same/or another bank in favor of pre-
registered beneficiaries have also commenced in a few banks. In order to
ensure a level playing field and considering that the technology is
relatively new, Reserve Bank has brought out a set of operating
guidelines for adoption by banks.
1.2 For the purpose of these Guidelines, “mobile banking transactions” is
undertaking banking transactions using mobile phones by bank
customers that involve credit/debit to their accounts.
2. Regulatory & Supervisory Issues
2.1 Only banks which are licensed and supervised in India and have a
physical presence in India will be permitted to offer mobile banking
services.
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2.2 The services shall be restricted only to customers of banks and/or
holders of debit/credit cards issued as per the extant Reserve Bank of
India guidelines.
2.3 Only Indian Rupee based domestic services shall be provided. Use of
mobile banking services for cross border inward and outward transfers is
strictly prohibited.
2.4 Banks may also use the services of Business Correspondent
appointed in compliance with RBI guidelines, for extending this facility to
their customers.
2.5 The guidelines issued by the Reserve Bank on ‘Risks and Controls in
Computers and Telecommunications’ vide circular DBS.CO.ITC.BC. 10/
31.09.001/ 97-98 dated 4th February 1998 will apply mutatis mutandis
to mobile banking.
2.6 The guidelines issued by Reserve Bank on “Know Your Customer
(KYC)”, “Anti Money Laundering (AML)” and Combating the Financing of
Terrorism (CFT) from time to time would be applicable to mobile based
banking services also.
2.7 Only banks who have implemented core banking solutions would be
permitted to provide mobile banking services.
2.8 Banks shall file Suspicious Transaction Report (STR) to Financial
Intelligence Unit – India (FIUIND) for mobile banking transactions as in
the case of normal banking transactions.
3. Registration of customers for mobile service
3.1 Banks shall put in place a system of document based registration
with mandatory physical presence of their customers, before
commencing mobile banking service. Reserve Bank would consider
relaxation in specific cases while approving the proposals of banks.
3.2 On registration of the customer, the full details of the Terms and
Conditions of the service offered shall be communicated to the customer.
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4 Technology and Security Standards
4.1 Information Security is most critical to the business of mobile
banking services and its underlying operations. Therefore, technology
used for mobile banking must be secure and should ensure
confidentiality, integrity, authenticity and non-repudiability. An
illustrative, but not exhaustive framework is given at Annex-I.
5. Inter-operability
5.1 Banks offering mobile banking service must ensure that customers
having mobile phones of any network operator is in a position to avail of
the service. Restriction, if any, to the customers of particular mobile
operator(s) is permissible only during the initial stages of offering the
service, up to a maximum period of six months subject to review.
5.2 The long term goal of mobile banking framework in India would be to
enable funds transfer from account in one bank to any other account in
the same or any other bank on a real time basis irrespective of the
mobile network a customer has subscribed to. This would require
interoperability between mobile banking service providers and banks and
development of a host of message formats. To ensure inter-operability
between banks, and between their mobile banking service providers,
banks shall adopt the message formats like ISO 8583, with suitable
modification to address specific needs.
6. Clearing and Settlement for inter-bank funds transfer
transactions
6.1 To meet the objective of a nation-wide mobile banking framework,
facilitating inter-bank settlement, a robust clearing and settlement
infrastructure operating on a 24x7 basis would be necessary. Pending
creation of such a national infrastructure, banks may enter into bilateral
or multilateral arrangement for inter-bank settlements, with express
permission from Reserve Bank of India, unless such arrangements have
been authorized by the Reserve Bank under the Payment and Settlement
System Act, 2007.
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7. Customer Complaints and Grievance Redressal Mechanism
7.1 The customer /consumer protection issues assume a special
significance in view of the fact that the delivery of banking services
through mobile phones is relatively new. Some of the key issues in this
regard are given at Annex-II.
8. Transaction limit
8.1 For the present, banks are permitted to offer this facility to their
customers subject to a daily cap of Rs. 5000/- per customer for funds
transfer and Rs.10,000/- per customer for transactions involving
purchase of goods/services.
8.2 Banks may also put in place monthly transaction limit depending on
the bank’s own risk perception of the customer.
9. Board approval
9.1 Approval of the Board of Directors (Local Board in case of foreign
banks) for the product, as also the perceived risks and mitigation
measures proposed to be adopted must be obtained before launching the
scheme.
10. Approval of Reserve Bank of India
10.1 Banks wishing to provide mobile banking services shall seek prior
one time approval of the Reserve Bank of India, by furnishing full details
of the proposal.
Annex- I
Technology and Security Standards
1. The security controls/guidelines mentioned in this document are only
indicative. However, it must be recognised, the technology deployed is
fundamental to safety and soundness of any payment system. Therefore,
banks are required to follow the Security Standards appropriate to the
complexity of services offered, subject to following the minimum
standards set out in this document. The guidelines should be applied in
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a way that is appropriate to the risk associated with services provided by
the bank and the system which supports these services.
2. Banks are required to put in place appropriate risk mitigation
measures like transaction limit (per transaction, daily, weekly, monthly),
transaction velocity limit, fraud checks, AML checks etc. depending on
the bank’s own risk perception, unless otherwise mandated by the
Reserve Bank.
3. Authentication
Banks providing mobile banking services shall comply with the following
security principles and practices for the authentication of mobile banking
transactions:
a) All mobile banking shall be permitted only by validation through a two
factor authentication.
b) One of the factors of authentication shall be mPIN or any higher
standard.
c) Where mPIN is used, end to end encryption of the mPIN is desirable,
i.e. mPIN shall not be in clear text anywhere in the network.
d) The mPIN shall be stored in a secure environment.
4. Proper level of encryption and security shall be implemented at all
stages of the transaction processing. The endeavor shall be to ensure
end-to-end encryption of the mobile banking transaction. Adequate safe
guards would also be put in place to guard against the use of mobile
banking in money laundering, frauds etc. The following guidelines with
respect to network and system security shall be adhered to:
a) Implement application level encryption over network and transport
layer encryption wherever possible.
b) Establish proper firewalls, intruder detection systems (IDS), data file
and system integrity checking, surveillance and incident response
procedures and containment procedures.
c) Conduct periodic risk management analysis, security vulnerability
assessment of the application and network etc at least once in a year.
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d) Maintain proper and full documentation of security practices,
guidelines, methods and procedures used in mobile banking and
payment systems and keep them up to date based on the periodic risk
management, analysis and vulnerability assessment carried out.
e) Implement appropriate physical security measures to protect the
system gateways, network equipments, servers, host computers, and
other hardware/software used from unauthorized access and tampering.
The Data Centre of the Bank and Service Providers should have proper
wired and wireless data network protection mechanisms.
5. The dependence of banks on mobile banking service providers may
place knowledge of bank systems and customers in a public domain.
Mobile banking system may also make the banks dependent on small
firms ( i.e. mobile banking service providers) with high employee
turnover. It is therefore imperative that sensitive customer data, and
security and integrity of transactions are protected. It is necessary that
the mobile banking servers at the bank’s end or at the mobile banking
service provider’s end, if any, should be certified by an accredited
external agency. In addition, banks should conduct regular information
security audits on the mobile banking systems to ensure complete
security.
6. For mobile banking facilities which do not contain the phone number
as identity, a separate login ID and password is desirable to ensure
proper authentication.
Annex-II
Customer Protection Issues
1. Any security procedure adopted by banks for authenticating users
needs to be recognized by law as a substitute for signature. In India, the
Information Technology Act, 2000, provides for a particular technology as
a means of authenticating electronic record. Any other method used by
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banks for authentication is a source of legal risk. Customers must be
made aware of the said legal risk prior to sign up.
2. Banks are required to maintain secrecy and confidentiality of
customers' accounts. In the mobile banking scenario, the risk of banks
not meeting the above obligation is high. Banks may be exposed to
enhanced risk of liability to customers on account of breach of secrecy,
denial of service etc., on account of hacking/ other technological failures.
The banks should, therefore, institute adequate risk control measures to
manage such risks.
3. As in an Internet banking scenario, in the mobile banking scenario
too, there is very limited or no stop payment privileges for mobile
banking transactions since it becomes impossible for the banks to stop
payment in spite of receipt of stop payment instruction as the
transactions are completely instantaneous and are incapable of being
reversed. Hence, banks offering mobile banking should notify the
customers the timeframe and the circumstances in which any stop-
payment instructions could be accepted.
4. The Consumer Protection Act, 1986 defines the rights of consumers in
India and is applicable to banking services as well. Currently, the rights
and liabilities of customers availing of mobile banking services are being
determined by bilateral agreements between the banks and customers.
Taking into account the risks arising out of unauthorized transfer
through hacking, denial of service on account of technological failure etc.
banks providing mobile banking would need to assess the liabilities
arising out of such events and take appropriate counter measures like
insuring themselves against such risks, as in the case with internet
banking.
5. Bilateral contracts drawn up between the payee and payee’s bank, the
participating banks and service provider should clearly define the rights
and obligations of each party.
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6. Banks are required to make mandatory disclosures of risks,
responsibilities and liabilities of the customers on their websites and/or
through printed material.
7. The existing mechanism for handling customer complaints/grievances
may be used for mobile banking transactions as well. However, in view of
the fact that the technology is relatively new, banks should set up a help
desk and disclose the details of the help desk and escalation procedure
for lodging the complaints, on their websites. Such details should also be
made available to the customer at the time of sign up.
8. In cases where the customer files a complaint with the bank disputing
a transaction, it would be the responsibility of the service providing
bank, to expeditiously redress the complaint. Banks may put in place
procedures for addressing such customer grievances. The grievance
handling procedure including the compensation policy should be
disclosed.
9. Customers complaints / grievances arising out of mobile banking
facility would be covered under the Banking Ombudsman Scheme.
10. The jurisdiction of legal settlement would be within India.
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