UNIT IV

TELECOMMUNICATION AND INFRASTRUCTURE FINANCE

In the past 25 years, the communications sector has transformed from

being primarily focused on voice services to becoming a diverse and
competitive industry utilizing terrestrial, satellite, and wireless
transmission systems. Crucial to any economy, it serves as the backbone
for business operations, public safety, and government functions
Telecommunication
1) India ranks as the world's second-largest telecommunications market
with 1.16 billion subscribers, experiencing significant growth over the
last decade.
2) The Indian mobile economy is a key contributor to the country's GDP
and is expected to continue its substantial impact, according to a report
by Boston Consulting Group (BCG).
3) In 2019, India become the second-largest market globally in terms of
app downloads.

Market Size

 India is the world's second-largest market for internet users, with a total of
743.19 million subscribers in FY20, growing at a CAGR of 21.36% from FY16
to FY20.
 Total wireless data usage in India reached 25,369,679 TB in Q1FY21,
marking an 11.01% quarterly growth.
 India ranks as the world’s second-largest telecommunications market, with
a total subscriber base of 1.16 billion.
 The gross revenue of the Indian telecom sector in the first quarter of FY21
stood at Rs. 66,858 crores (US$ 9.09 billion).

Investment/Major Development
  With daily increasing subscriber base, there have been a lot of investment
and development in the sector.
 FDI inflow into the telecom sector during April 2000 - June 2020 totalled
US$ 37.27 billion according to the data released by Department for
Promotion of Industry and Internal Trade (DPIIT).
Some of the developments in the recent past are:

 In Q1 FY21, telecom service spending increased by 16.6% YoY, with

three-fourths spent on data services, despite COVID-19 disruptions.
 Google acquired a 7.73% stake in Reliance Industries' digital
subsidiary, Jio Platforms, for US$4.5 billion in November 2020.
 Reliance Jio partnered with 22 airlines for inflight internet in
September 2020, while Airtel collaborated with Radware for cloud
security services.

Government Initiatives
The Indian Government has accelerated reforms in the telecom sector to facilitate
growth for companies.

Achievements

Following are the achievements of the Government in the past four years:

 Department of Telecommunication launched ‘Tarang Sanchar’ - a web

portal sharing information on mobile towers and EMF Emission
Compliances.
 In October 2020, Unified Payments Interface (UPI) recorded 2.07 billion
transactions worth Rs. 3.86 lakh crore (US$ 52.10 billion).
 Over 75% increase in internet coverage from 251 million users to 446
million.

Telecommunications – Issues and

Policies in Financing Infrastructure
Telecommunications infrastructure services provide setup, maintenance, and consulting for
data and voice communications technologies. Examples of telecommunications infrastructure
services include optical fibre installation. ... installation of standard phone equipment and data
networks.

Features
1) Providers: Telecommunications infrastructure service providers include
satellite companies, phone companies, and Internet service providers
(ISPs).
2) Services: These providers assist customers in determining their unique
telecommunications infrastructure requirements.
3) Customization: Services are tailored to meet the specific needs of
individuals or businesses.
4) Cost Variation: The design cost for telecommunications infrastructure
varies widely based on the complexity and scope of services.
5) Customer Support: Providers offer assistance and guidance to clients in
understanding and navigating their telecommunications needs.

Types
1) Types of Services:
a) Traditional telecommunications infrastructure services involve
building, managing, and operating voice networks.
b) Telecommunication cabling infrastructure services install standard
cables or fiber optics in large buildings or factories.
2) Specialized Services:
a) Telecommunications infrastructure services can specialize in
development or design, offering planning, implementation, and
testing services.
b) Development services contribute to the growth of IT software and
technologies like GSM and CDMA.
3) Design Considerations:
a) Telecommunications infrastructure design involves planning long
optical fiber cabling across various locations and buildings.
 b) Design considerations converge voice and data through technologies
like voice over IP, used in telephone lines, Internet connections, call
recording, and call management.

Applications

Telecommunications infrastructure services serve many industries and meet a

variety of regulatory requirements for telecommunications cabling and
telecommunications infrastructure design.

Some companies provide:

1. media gateways
2. soft switches
3. GPRS technology
4. mobile portals
5. billing and mediation systems

Infrastructure Finance
1. Traditional economists are of the opinion that infrastructure is the heart of
the economy. Empirical data clearly shows that given a choice, investors
prefer to invest their money in countries whose infrastructure is more
developed. Hence, it can be said that rapid infrastructure development is one
of the most basic ways in which a country can take advantage of economic
opportunities. It is, therefore, no surprise that countries around the world
focus heavily on building infrastructure.
2. Donald Trump i.e., the President of the United States, has openly announced
that his government is planning to spend $1 trillion in order to develop
infrastructure within the country.
3. Developing countries like India have also echoed this sentiment as they have
also announced plans to spend billions of dollars in order to build and
upgrade their infrastructure.
4. Hence, it can be said that infrastructure and its financing is an important
issue all across the world regardless of whether the nation is developing or
developed.
5. Since infrastructure is such a high priority issue in the world, the financing
of infrastructure projects is also considered to be very important. As a result,
an entire subject called infrastructure financing has been developed.
 Definition of Infrastructure Financing
The formal definitions of infrastructure financing are not very clear. Generally, in
most countries around the world, the government issues a list of industries that are
to be given infrastructure status. The financing of projects or companies involved
in these sectors is called infrastructure financing.

However, this definition is more for the government’s internal operations. This
definition is used in order to provide tax breaks or subsidies that have been
promised to the infrastructure sector.

However, there are certain shared characteristics amongst industries that are
classified as infrastructure all over the world. Some of these characteristics have
been mentioned below:
1. Economic Centrality:
 Industries with infrastructure status are crucial for rapid growth and
development.
 Roadways and railways enhance competitiveness and lead to
increased exports.
 Sectors like telecommunications and electricity are globally
considered central to the economy, receiving widespread
infrastructure finance.
2. Strategic Importance:
 These industries are strategically important, limiting private sector
involvement to prevent excess players.
 Results in a monopolistic market with regulated prices due to
limited suppliers.
 Investors show keen interest in infrastructure opportunities due to
strategic significance.
3. Asset Characteristics:
 Low risk and stable cash flows define infrastructure assets.
 Projects built in high-demand areas, with consumers or government
willing to pay a stable cash outflow for an extended period.

The bottom line is that the defining feature of infrastructure financing is the sectors
to which money is being lent. The different types of loans such as overdraft, term
 loan, working capital loan, etc. are generally included in the definition of
infrastructure financing.

Types of Infrastructure Financing

Infrastructure financing has various sub-divisions. These divisions are generally
based on the type of industry that the funds will be utilized in. The different types
of infrastructure financing have been listed below.

Economic:

 Infrastructure financing driven by economic motives.

 New ports enhance foreign trade, funded through public-private
partnership.
 Projects with net positive value, creating shared value for government and
private parties.
 Benefits extend to the larger economy rather than specific industries or
individuals.

Social:

 Infrastructure funding serves social causes like providing clean water,

healthcare, and education.
 Projects undertaken regardless of negative net present value for the sake
of social welfare.
 Government allocates funds for these projects even with limited
immediate returns.
 Undertaken predominantly by the government due to potential negative
net present value.

Commercial:

 Similar to economic projects but with benefits directly identifiable for a

specific group.
 Toll roads and metro rail projects fall under commercial infrastructure
projects.
 Funded by charging those who utilize the services, creating a commercial
revenue model.

Infrastructure Finance Projects: Major Sources of Funding

 It is a known fact that the world needs infrastructure projects and, therefore,
infrastructure finance. Developing countries need to build their infrastructure
for the first time.
 This needs to be done in order to attract more investments. However, even
developed countries need to build more infrastructure projects.
 The bottom line is that infrastructure projects all over the world need a lot of
funding. It is estimated that more than $96 trillion is required to fund
infrastructure projects by the year 2030.
 At present, the annual budget available for infrastructure funding worldwide
is close to $2.5 trillion to $3 trillion. However, the actual amount of funds
needed is more than double the available amount.

Public Finance

 Government Funding:
 Major source for infrastructure finance.
 Utilizes tax dollars globally.
 Financial Commitment:
 Countries allocate 5% to 14% of GDP.
 Spent on infrastructure development and maintenance.
 Social Value Projects:
 Funding directed to financially unviable projects with community
social value.
 Public-Private Collaboration:
 Private sector engaged for project execution.
 Enhances efficiency, treated as subcontractors.
 Corruption Challenges:
 Government-funded projects prone to corruption.
 Development charges often inflated.
 Funds may end up controlled by corrupt politicians or mafias.
 Supra National Financial Institutions
 Supranational Financial Institutions:
 Examples include World Bank, International Monetary Fund (IMF),
Asian Development Bank.
 Funding Focus:
 Fund financially viable projects.
 Emphasis on urban projects like metro rails, bridges, and flyovers.
 Internal Rate of Return (IRR):
 IRR requirements are generally lower compared to private sector
institutions.
 Additional Services:
 World Bank and Asian Development Bank provide advisory services.
 Services include loan guarantees and advisory support for policy
creation.
 Treasury Services:
 Institutions offer treasury services for optimal fund utilization in
infrastructure projects.

Private Finance
1. Governments all over the world are desperately seeking the intervention of
private money to help fill the funding gap being faced for infrastructure
projects. As a result, many private mutual funds have been set up for this
purpose.
2. Governments try to make these investments more attractive by providing
tax breaks to individuals who invest their money in such projects.
3. A wide variety of financial instruments (both debt as well as equity) are
being used to help channelize the savings of the public towards
infrastructure projects.
4. Attempts are also being made to woo institutional investors such as
insurance companies and pension funds to increase the amount of funding
available.
 Public-Private Partnership (PPP):
 Model for infrastructure funding with private sector making
the initial investment.
 Partnership Structure:
 Government provides land and resources; private sector brings
technical expertise.
 Private party gains certain rights over the developed asset.
 Revenue Generation:
 Private party collects revenue for a set period to recoup
investment and make a reasonable profit.
 Asset Return to Government:
 Asset returned to government; decision on continued revenue
collection for project upkeep.
 Viability Requirement:
 PPP effective for highly viable projects with sought-after
Internal Rate of Return (IRR).