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Funding of National Optic Fibre Network (NOFN) - Who's Accountable?

Posted by Aditya Garg at Jul 17, 2015 02:20 AM |
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The National Optic Fibre Network, a part of the Government's Digital India Initiative, has been in the news since the recent Expert Committee Report. In this Blog, the author examines the Accountability of the funding of the project.

The National Optic Fibre Network (NOFN) is a project launched by the Government under their 'Digital India' initiative. Implementation of the project is being undertaken by Bharat Broadband Nigam Limited (BBNL), a Special Purpose Vehicle (SPV) created for the project. [1] The project, launched in 2011, has seen multiple delays. The recent Expert Committee report on the project has now set an end-date for December 2016. It has also proposed an increase in the funding from 20,000 crore to 72,000 crore approximately. This is greater than a threefold increase.[2] The Universal Service Obligation Fund (USOF) provides all the funding for the implementation of the project under an agreement between them and BBNL. [3] The close relationship between the two entities through their parent entity, however, can lead to a lax oversight of the entire process.

Universal Service Obligation Fund

USOF, established in 2002, provides effective subsidies to ensure telegraph services are provided to everyone across India, especially in the rural and remote areas. It is headed by the USOF Administrator who reports to the Secretary, Department of Telecommunications (DoT). [4] Funds come from the Universal Service Levy (USL) of 5% charged from all the telecom operators on their Adjusted Gross Revenue (AGR) which are then deposited into the Consolidated Fund of India, and require prior parliamentary approval to be dispatched.[5] The USOF works through a bidding process, where funds are given to the enterprise quoting the lowest bid. However, the funds for NOFN were made an exception to this process since BBNL was the sole party involved in the implementation having being specifically created for it.[6]

Agreement to Transfer Funds between USOF and BBNL

The agreement[7] between USOF and BBNL provided for USOF to cover all the expenses of BBNL undertaken while working on NOFN project. It empowered USOF, amongst other things, to:

  • Revoke the Agreement in Public Interest within 5 years from signing; and to re-new the agreement or not to re-new it
  • Enforce Operating and Technical Condition upon BBNL while implementing the NOFN project
  • Have the Right to Inspect, Test and Monitor the enforcement of such Conditions so imposed

Conflict of Interest between both parties

The Administrator of USOF functions as an attached office to the Ministry of Dot, and is required to report to them,[8] while BBNL is an SPV established under the DoT[9] and has an Memorandum of Understanding [10] with them. Since the parent entity of both the parties is the same, there is a definite conflict of interest. An analysis of USOF's largest and most ambitious program for mobile provisioning in rural areas showed slow progress due to[11]:

  • Lack of Accountability arising from the relationship between the Government owned incumbent and the USOF Administrator
  • No proper evaluation of USOF
  • Non-ring fencing of the fund
  • Poor quality project management

Lack of Review Mechanism with effective power

Similarly in NOFN, if no effective review mechanism is evolved to check the progress of the timeline and implementation of the projects, it may prove ineffective.[12] 3rd party review mechanisms have been suggested as an alternative to USOF mechanisms to ensure neutrality and efficiency[13] since the the agreement gives USOF the Right to 'Inspect, Test and Monitor', but there is no effective Review Mechanism available with the USOF to actually undertake the task. The ones available would also be working under the DoT and hence operate under a conflict of interest which may be misused to disburse funds even though they are not being used efficiently or in a timely fashion.

Other Funding Options - Private Actors and State Govts.

The Expert Committee also looked into two other funding options. Bringing Private Actors on Board in implementation of Phase II of the Project was the first.[14] This has been criticized as being unfair to Public Enterprises since they have been allotted the 'hard' areas while the Private Actors will get the 'soft' ones. [15] The abysmal record of Private Actors in Rural Areas has also been mentioned as a factor against them.[16]

The second suggestion is to bring in State Governments. Andhra Pradesh has already decided to opt for its own SPV to implement NOFN while Kerala and Tamil Nadu are considering it.[17] The problems with having multiple implementing bodies are:

  • Transferring Funds to multiple bodies
  • Having to track their work separately
  • Lack of accountability for work done by them individually

Since a criticism of the current implementation mechanism has been based on the fact that 3 PSUs (BSNL, RailTel and PowerGrid) have been involved, having multiple SPVs would only add to the woes.[18]

The project, having been delayed multiple times, is now set for a December-2017 end. The funding for it has also been tripled. Hence, when we see that the funds are being given away so easily to BBNL and without any effective procedure to maintain the efficacy of the work done, it raises questions on the accountability of the Government regarding the fund which has been collected through revenue from all telecom operators (via USL). Therefore, a more open mechanism has to be ensured to reduce chances of bias towards BBNL by USOF, both having the same parent entity leading to conflict of interest between the two. This should be the focus right now, rather than introducing new funding options.


[1] 'Objectives, About BBNL' http://www.bbnl.nic.in/content/page/objectives.php accessed 2 July 2015.

[2] Yuthika Bhargava, 'National Opic Fibre Network - Revamp on Cards' (The Hindu, 30 May 2015) http://www.thehindu.com/business/Industry/national-optical-fibre-network-revamp-on-cards/article7261346.ece accessed 2 July 2015.

[3] 'Agreement For Support from USO Fund For Creation, Operation and Maintenance of the National Optical Fibre Network (NOFN) for Provision of Broadband Connectivity to the Panchayats to be executed by Bharat Broadband Network Limited (BBNL) Under Universal Services Obligation Fund, The Indian Telegraph (Amendment) Rules, 2012' http://www.usof.gov.in/usof-cms/GagendaPdf/NOFN_Agreement.pdf accessed 2 July 2015.

[4] 'About USOF' http://www.usof.gov.in/usof-cms/usof_home_contd.htm accessed 2 July 2015.

[5] 'USOF Brochure' http://www.usof.gov.in/usof-cms/USOF-Brochure.pdf accessed 2 July 2015.

[6] 'Indian Telegraph (Amendment of 2012) Rules, 1951' http://usof.gov.in/usof-cms/ActsRules/Indian%20Telegraph%20Rules%202012.PDF accessed 3 July 2015.

[7] 'Agreement For Support from USO Fund For Creation, Operation and Maintenance of the National Optical Fibre Network (NOFN) for Provision of Broadband Connectivity to the Panchayats to be executed by Bharat Broadband Network Limited (BBNL) Under Universal Services Obligation Fund, The Indian Telegraph (Amendment) Rules, 2012' http://www.usof.gov.in/usof-cms/GagendaPdf/NOFN_Agreement.pdf accessed 5 July 2015.

[8] 'Constitution, Powers and Functions of the Office of Universal Service Fund Administrator' http://www.usof.gov.in/usof-cms/usofsub/Constitution,%20Powers%20and%20Functions%20of%20the%20Office%20of%20Universal%20Service%20Fund%20Administrator.pdf accessed 6 July 2015.

[9] 'Company Profile' http://www.bbnl.nic.in/content/page/company-profile.php accessed 5 July 2015.

[10] 'Memorandum of Understanding 2015-16 with Department of Telecommunication' http://www.bbnl.nic.in/upload/uploadfiles/files/BBNL_Signed_Copy%20of%20MoU%202015-16.pdf accessed 6 July 2015.

[11] Rekha Jain & G. Raghuram, 'Role of Universal Service Obligation Fund in Rural Telecom Services: Lessons from the Indian Experience' http://www.iimahd.ernet.in/assets/snippets/workingpaperpdf/2009-06-03Jain.pdf accessed 2 July 2015.

[12] Ibid

[13] Ibid

[14] Mansi Taneja, 'Govt decides to rope in private players for NOFN project' (Business Standard, 15 January 2015) http://www.business-standard.com/article/economy-policy/govt-decides-to-rope-in-private-players-for-nofn-project-115011401190_1.html accessed 1 July 2015.

[15] Prabir Purkayastha, 'National Optical Fibre Network Project And the Expert Committee Report' (Peoples Democracy, No. 25, Vol. XXXIX, 28 June 2015).

[16] Ibid

[17] Mansi Taneja, 'National Optic fibre network: Govt to rope in state govts' (Business Standard, 29 May 2015) http://www.business-standard.com/article/economy-policy/national-optic-fibre-network-govt-to-rope-in-state-govts-115052900050_1.html accessed 4 July 2015.

[18] 'Trai: Optical fibre network project caught in red tape' (The Financial Express, 18 April 2015) http://www.financialexpress.com/article/economy/trai-optical-fibre-network-project-caught-in-red-tape/64699/ accessed 2 July 2015.

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