Mobile services: mission rural India

BANGALORE, INDIA: The present rural India with a substantial improvement in purchasing power presents a growing potential for telecom operators. Indeed rural consumers have become the prime target market for every consumer durable and non-durable like electronics, automobiles, etc. However, these are the areas still characterized by low per capita income, low literacy rates, low level of industrialization, and poor agricultural productivity.

These characteristics of rural India limit its capacity for consumption of goods and services. However, with the telecom tariff having come down to the lowest level, there is ample scope for expansion of telecom networks in rural areas.

The Telecom Regulatory Authority of India data shows that rural mobile phone connections stood at 39.46 mn as of June 2007. With a total subscriber base of 185 mn in that month, rural subscribers formed a formidable block of 21.31 percent or over one-fifth of the total mobile user base in India.

Rural on a high

State-owned Bharat Sanchar Nigam (BSNL) commands the lion's share of rural mobile phone users by virtue of its massive countrywide network coverage. Still, rural mobile penetration is pretty low, just 4.92 percent, though it has touched double digits in some prosperous states like Punjab, Kerala, and even Himachal Pradesh. However, overall rural penetration remains way below the 43.88 percent mobile density in urban areas.

Rural India, experts say, represents the next big growth opportunity for mobile service operators. Commenting on the data, TRAI chairman Nripendra Misra says that the next phase of mobile phone growth would come from the hinterland. Operators need to roll out infrastructure rapidly in the under-served areas of the country, he adds. “Of the next 250 mn users who will go mobile, as many as 100 mn will come from rural India,” he says.

It is perhaps because of this that TRAI has asked the Department of Telecom (DoT) to sanction incentives for rolling out mobile networks in rural India. In its recent recommendations on licensing reform, the regulator asked the government to give incentives for rural networks by reducing the levy charged for development them. BSNL director (finance) SD Saxena says that nearly 70 percent of all future mobile growth in the country would come from rural areas.

“People in rural areas have the money and desire to go mobile. There is a lot of scope for growth,” he says. BSNL has recently contracted purchase of over 22 mn mobile connections; a significant portion of it will go into semi-urban and rural rollout.

The USOF mileage

Providing mobile services in rural areas has triggered a virtual fight among the private mobile operators. And, this can be gauged by the recent bids received by the DoT for a Universal Services Obligation (USO) fund project that envisages setting up cellular infrastructure across 2.5 lakh villages that have not tasted any telecommunications services yet.

While the government is willing to give subsidy to companies who will provide telecom services in these villages, almost all telcos have put in zero or negative bid. That means these operators are willing to offer cellular services in rural India without any subsidy from the government; some are even ready to give monetary support to the government instead of taking support from the USO fund.

But what makes these operators so adventurous? It is undoubtedly the telecom potential these areas offer. Around 70 percent of the country's population lives in villages. The entire country's network backbone comprises around 6,000 towns and six lakh villages. But, still, Indian entrepreneurs of the fastest growing telecom industry have been quite averse to entering this market. And that's the reason the teledensity in rural areas is 2:31, which is one-of-its-kind in the world! And, this is not going down well with mobile operators, not because of this huge disparity, but because operators could see the treasure hidden in these villages.

With the help of 7,871 towers, the proposed USO project will give mobile phone access to another 270 mn people, and expand the geographical coverage of telecom services by about 20 percent.

But this was not the case a few years ago, when, at the slight mention of rural telephony, operators were getting shivers up their spine. At that time, they used to term these villages unviable, uneconomical, and unreachable. Take this example: the Village Public Telephone (VPT) project envisaged setting up a public telephone in nearly 6.5 lakh villages across the country. After two years of the project, most of the private operators who had then taken up the responsibility to set up these VPTs gave up, leaving the state-owned BSNL to complete its share.

One more example is the Rural Community Phones, which started in September 2004 under the USO Fund. Besides BSNL, Reliance Communications was the only private operator to take up the project, and after three years, they are yet to set up even 5,741 rural phones out of the 21,431 envisaged under the project. While the company has time till September 2007 to fulfill its commitment, this year Reliance has so far set up nearly 1,000 phones. And BSNL, out of its assigned target of 24,822, has set up 20,943. Surprisingly, the USO fund, which has been set up specifically to better the dismal rural telecom penetration, has more than $2 bn lying unutilized.

The government has also asked telecom companies and infrastructure providers to bid for building towers for which it had earmarked a benchmark subsidy for each tower. State-owned BSNL is the highest bidder in 63 of the 81 clusters and has offered to build the towers at 20 percent of the benchmark subsidy. In other words, it has asked for one-fifth of the subsidy.

Also, under the aegis of the Universal Service Obligation (USO) program, Reliance Communications has commenced rollout of the “World's Largest and Fastest Rural Infrastructure” project. The project comprises commissioning 8,982 Base Terminal Stations (BTSs), which would provide telecom services in 2,34,000 Indian villages that do not have any telecom connectivity at present. Last year, the company had established telecom network in over 40,000 villages under the USO fund, adding close to 7.5 lakh new subscribers in these areas.

“Upon completion of the network expansion program, we will cover almost 100 percent of all rail routes, providing seamless voice, video, radio, and Internet connectivity to 14 mn commuters every day,” says SP Shukla, president, Personal Business, Reliance Communications.

“We will cover almost 100 percent of all national highways and 84 percent of all state highways, giving millions of users the power to talk, text, surf, play, chat or simply stay in touch with nearly the entire length of India's 2,00,000 km road network, including all the villages that come under this stretch,” he explains.

Another rural initiative by the Anil Ambani-led company has been the e-Governance project with the West Bengal government. Under this project, RCom would set up 1,860 Common Service Centers (CSC) across the state of West Bengal for providing various Government-to-Government (G2G), Government-to-Business (G2B), Business-to-Business (B2B), and Business 2 Consumer (B2C) services to the rural populace of the state on a Build-Own-and-Operate (BOO) model.

Leading the way

“As on date, BSNL has provided more than 32 mn wired lines in the country and 29,000 of our telephone exchanges are in rural areas,” opines Kuldeep Goyal, CMD, BSNL. In fact, the percentage of rural subscribers in BSNL fixed network is more than 42 percent where the monthly rental charges are even lesser than what is prescribed by the regulator. BSNL has also provided more than 5.5 lakh villages with public telephone facilities.

With the availability of wireless technologies, BSNL has introduced large scale CDMA technology. CDMA networks of more than 5.5 mn lines already exist, and 3 mn lines are being added in the current financial year. “With this expansion, we hope to provide telephone connections on demand to 90 percent of the population in the country,” he adds.

A digital satellite network is also being put in place to provide public telephone access to more than 10,000 really remote and inaccessible villages throughout the country. It is also worth mentioning that approximately 200 numbers of VPTs are already being operated by BSNL through INMARSAT for extending telecom access to remote villages at a very high operational cost.

BSNL has also used the facility of providing telecom access to small and remote villages through the agencies of Department of Posts under the Grameen Sanchar Sevak (GSS) scheme under this Department of Posts is utilized to carry the telephone instrument for making telecom services available to villagers. Similar arrangements have already been made with an NGO in West the Bengal Circle.

Spreading wings

Moving from urban areas, the operators are now taking into consideration villages with as little as 1,000 people to provide services. "A few years ago, operators would not consider rolling out telecom services to areas with a less than 10,000 population. This has now come down to 5,000, and in a few years would get into clusters of villages that have just 1,000 people," says Pradip Srivastava, chief marketing officer, Idea Cellular.

Industry associations have also shared the same opinion. "With over 6-7 mn subscribers being added every month, operators are going after every subscriber they can find in this country,” says TV Ramachandran, director general, Cellular Operators' Association of India (COAI).

In the current scenario, it seems that private operators have found monetary potential in villages and to tap that, they are on a hunting spree. Almost all operators have huge plans for rural India. Airtel, for instance, has adopted the `match-box' approach, which essentially means that Airtel will make its services availabe wherever a matchbox is available, even in the smallest and remotest corners of the country.

"The other key initiative is our 'Chapa Chapa' approach which supports our objective of reaching out to all towns with a population of less than 5,000. We believe that the next level of growth will happen from these geographies," says a Bharti Airtel spokesperson. Currently, Airtel is present in 4,581 census towns and 176,593 non-census towns and villages in India, covering approximately 54 percent of the country's population. It is having over 490,000 retail outlets (as of December 31, 2006) including over 1,000 dedicated Airtel Relationship centers.

Likewise, Tata Teleservices has invested close to Rs 4,000 crore for network expansion in FY '07 and currently has presence in over 3,400 towns. Also, it is planning to add another 1,000 towns by this year-end. In terms of retail spend, the company has invested close Rs 80-100 crore to augment its retail presence in the country, and currently has close to 2,900 outlets. Besides these outlets, the company retails through 60,000 dealers spread across the country.

It has over 140 True Value Hubs (TVH), close to 2,300 True Value Shoppes (TVS) franchisees, and 400 plus company owned and company operated outlets. The TVH provides an 'Integrated Service Center' for Tata Indicom offerings and is designed to offer an end-to-end experience for customers. The Hubs are equipped with high profile touch screens, and an experience hall. Tata Indicom 'TVH' offers display of products and services, Online Internet, Broadband connections, and 24 hour payment machines, which accept cash and cheque payments, and is strategically visible for high street retailing.

Spice Telecom, a small operator, which operates in nine out of twenty-three telecom circles will also be rolling out its services in the remaining fourteen telecom circles for which it obtained licenses during December 2006. Additionally, Aircel has also obtained the nod from DoT to provide International Long Distance (ILD) and National Long Distance (NLD) telephony services.

However, these new rollouts will happen as per availability of spectrum and is likely to happen over the next two years. The company sells its postpaid connections through franchisee outlets branded 'Aircel Cell City' and prepaid connections through retail outlets. They have more than 150 Cell City outlets in Tamil Nadu and sell prepaid through 30,000 outlets.

Operators driving low cost handsets

Analysts caution that while operators are rolling out networks to remote and poor areas, they also need to bring down the cost of owning a phone, if they want to penetrate a highly budget-conscious rural market. For this reason, almost all operators are in talks with various handset makers for a low-end phone that they can bundle with. Motorola is ahead of others in coming up with handsets priced at around Rs 1,000, and service providers are looking forward to this type of models, as village folks would generally use phones for voice service, and not for data.

Reliance Communications has launched cheap mobile handsets costing a mere Rs 777. The price of the handsets, named Classic 202, Classic 204, and Classic 203, start from Rs 777 and goes up to Rs 888. And, it's a huge hit among rural CDMA users. Reliance Communications aspires to be the number one telecom player in India, a title currently held by Bharti Airtel. However, mere increase in the number of mobile connections will not aid the RCOM bottom line, because of the ARPU of Rs 377. And this compared to Rs 406 of Bharti Airtel, which has bundled with Motorola for its low cost handset priced at Rs 1,099.

Even before making its entry into the Indian mobile market, Vodafone has launched its first branded entry-level handsets priced between $25 and $45. The Vodafone branded handset has been launched aimed at the emerging and developing markets such as India.

Vodafone said that in markets such as India or Tanzania, the cost of purchasing a mobile handset could be one of the key barriers in accessing mobile services. In countries such as Kenya and Egypt, where Vodafone has introduced mobile financial remittance services, mobile technology has been shown to be able to provide secure and socially beneficial services beyond simple voice and data services to those who have no access to a bank account.

The Vodafone 125 and Vodafone 225 handsets are intended to help drive mobile penetration and will provide access to services for people in emerging markets that are already commonplace in Western Europe.

These two handsets are a result of an agreement signed with Chinese handset manufacturer ZTE in December 2006. The handsets are almost identical in functionality, but the Vodafone 125 has a black and white screen, while the Vodafone 225 has a color screen. Vodafone had specified the features, design, and functionality of the handset.

Taking a different route

For rural area penetration, most of the operators follow a varied distribution system. "Operators are now looking to roll out services in every nook and corner of the country. There is a huge untapped market there and operators now have a rural-focused rollout plan," says Ramachandran. Apart from the traditional three-tier distribution system, service providers to distributors to retailers to operators are now roping in rural distribution channels like the postal department or public distribution system.

Likewise, in order to reach out to every prospective customer, Bharti is adopting various routes in varied market segments. They have tie-ups with low-cost handset manufacturers to reach out to the lower-end market segment. They have also tied up with Canteen Stores Department (CSD) to launch Airtel Jai Jawaan prepaid cards for defense personnel.

These cards are available across 1,900 CSD outlets in the country, starting from Leh to Kanyakumari, Misamari to Kuchh. Some operators are also inking deals with rural initiatives like ITC's e-Choupal, Haryali Bazaar stores of DCM Sriram, and Godrej's Aadhar stores. Industry sources say, that state-owned BSNL is planning to tie-up with rural co-operative banks to push its service more aggressively.

In one of the innovative methods, Bharti Airtel has tied up with Mumbai's famous 'Dabbawalas'. These lunchbox carriers distribute home made food packed in lunch boxes to Mumbai office goers. Everyday, this strong community of around 5,000 people take lunch boxes to thousands of Mumbaikers with nearly 100 percent accuracy. And, now, after this tie-up, they would distribute Airtel mobile prepaid cards, recharge coupons, and bundled handsets. The company is all set to leverage the large distribution network of the 'Dabbawalas' to reach out to a larger consumer base.

Last, but not the least

The biggest advantage of mobile telephony is that the infrastructure of cell sites is widely shared, unlike wired telephones where a substantial part of the infrastructure is specific to a subscriber. To push costs down, the government must persuade existing operators, with fiscal concession if necessary, to install cell sites and illuminate rural areas fully with mobile signals so that visitors share infrastructure costs with the residents. It must mandate unrestricted roaming among subscribers of different networks, so that infrastructure is not duplicated. Reduction of levies will also help in this regard.

The cost of rolling out the mobile network is expected to be less than that of the fixed line. As a consequence, the subsidy the government would need to bear for each rural phone user would be much lower. The secret behind the near doubling of cell connections every year is the falling costs of using the mobile phone; and the increase in the subscriber base. The government would do well, if it takes the mobile lesson seriously and alter the terms of rural tenders.