The Current Telecom Industry

Presence in Rural India

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Team – Comfortably Dumb
Bhaskar Dayal Parashar
Sampreeth Kumar
Vijeesh R

International Management
Institute,New Delhi
Rural India :The changing paradigm

Rural India can be said to have a parallel economy, with same needs as
developed markets but reduced ability to pay. There are almost same
number of middle to high income households in rural areas (21.16 mn) as
urban India (23.22 mn) . Telecommunications has a direct interlink age with
India’s GDP growth as it contributes 1.5% (Estimated at 2.1% Rev by
March'11 Exit)of GDP of the country

(Source – TRAI Report for Q.E.30.6.2010)

Rural subscriber base has increased at a phenomenal rate of 66.9 % during

the period between June 2009 to June 2010,thereby increasing the overall
teledensity by a rate of almost 10%, from 15.35 % to 25.29 %. Part of this
may be attributed to the falling rates of voice calls, as well as the emergence
of a new market of cheap mobile phones. The focus is now on achieving the
Government Set target of 40% Rural teledensity by May 2014.

However , a case in point to note is the fact that though mobile subscribers
has steadily been on the rise in Rural India, the rural share of total mobile
subscription in India accounts for 32,99 %, though rural India comprises of
almost 70% of total population in India.

(As on 30.06.2010)
As visible from the above chart, the disparity of teledensity is visibly large
amongst different states. On one side, Himachal Pradesh, Gujarat, Haryana,
Kerela, Punjab & Tamil Nadu has rural teledensity of more than 35 % with
Himachal leading the pack at impressive 50.99 % .On the other side, we
have Bihar standing at a paltry 15.71 % followed by Madhya Pradesh at
16.83 %.However, North-East- I region (comprising Meghalaya, Mizoram &
Tripura), has shown a growth of 182.9% over the previous year, & the so-
called BIMARU states of Madhya Pradesh, Bihar, Rajasthan and Uttar Pradesh
have all shown a growth of over 80% in rural teledensity over the previous
year.
The nuances,and the challenges:

The main reasons restricting a rapid growth of mobile services in rural India
can be categorized in 6 major points:
1) Managing channels for sales and services in rural India due to logistical
issues associated with Proof of Identity & Customer Application form, which
get exacerbated due to tough geographical terrain coupled with the weak
infrastructural support.
2) Population in rural areas is widely dispersed, which increases the tower
requirements to cover a wide subscriber range.

3) Dismal Literacy rates, and less tech savvy people, thus leading to inability
to generate revenue out of VAS. Lack of locally relevant content adds to the
problem areas.

4) Challenges of Skilled workforce in the form of unavailability of trained

technicians as well as employable populace to take care of network
maintenance constraints.

5) Low spending power of end customers.

6) Limited electrification.

Though ARPU seems to have undergone a steady decline to reach Rs 122,

the situation seems to be much worse in rural areas, with the ARPU standing
in double digits. Rural consumers want basic, simple services, and a device
that is easy and inexpensive to operate. Voice rather than value-added
services continues to be the priority of customers.
However, what is also important to understand about ‘rural’ usage of mobile
phones in India is that the majority of the rural mobile users and connections
originate in the ‘larger’ population size villages (>2,000 population ones),
which also show a high propensity to have ‘multiple SIMs’. Further, 3/4th of
all existing rural mobile subscribers stay ‘within 10 kms ‘distance from the
nearest town.

An important characteristic of the rural mobile market of India is the price

sensitive mobile handset market. Not surprisingly, a supply chain for telecom
manufacturing is emerging, with manufacturers establishing local plants to
save on importing costs. Vodafone recently launched cheapest mobile phone
in the world, which will cost less than 500 rupees. Even Nokia has announced
that they will soon launch a sub 500 rupee basic mobile phone along with a
low cost 3G phone as well. Even home grown telecom companies like Gee
Pee Infotech have announced the lowest price colour mobile phones at a
paltry Rs.500.

For extending the telecom network in rural India, Indian government should
ensure speedy utilization of USO( Reached Rs. 35,000 crore now ) fund for
expansion of transmission towers and equipments and that could be shared
between operators for reducing the cost of rural service . The big challenges
for rural telecom network are to maintain network uptime due to frequent
power cuts , power problems and equipments maintenance . Evaluating
alternative sources of energy (like Solar Power) may be a step in this
direction.Currently, Indian Government Plans to spend about 150 crore
rupees on infrastructure over the next few years.

Prices of Personal computers are coming down, and cheap alternatives like
VOIP may affect profitability in the future

Major Players :

There are 11 players in the Indian rural mobile market space, however 4 of
them have negligible share. Bharati Leads the rural Market share as on June
2010 standing at 25.17 %.followed by Vodafone at 18.93 % and Idea at
16.06 %.

IDEA needs a special mention as far as the percentage of rural subscribers is

concerned because nearly half of it’s subscribers (48.87%), against the all
Indian average of 32.99%, as on June-10, are from rural areas.

Value added Services :

According to a report by Ernst & Young, the revenue in Rural India through
VAS comes through the following features
• SMS (31%)

• Download ringtones/wallpapers (19%)

• Agricultural Alerts/news in local language (9)

• Parenting Alerts (8%) and

• Games (7%)

With 3G services ironing its way in, the VAS industry is expected to
increase its share manifold. However,localization is the key to success
in the rural markets. To increase adoption, it essential to develop
services like news in local language, weather alerts for fishermen, and
comparative ‘mandi’ rates, among other services.

The way ahead :

1) Mobile-based technologies can be used as catalysts to strengthen

the nascent e-governance or “digital governance” regime in India.
(Case in point being NFC mobile technology developed by FINA –
MITRA)
2) Partnership with Micro finance companies and public sector
banks/units having strong presence in rural areas ( IDEA has already
collaborated with IOC for furthering its reach)
3) Internet enabled infrastructure like ITC e-Choupal or N-Lounge too
can be piggy-backed upon by the telecom operators for expanding
to the hinterland.
4) Using an influential person from the village community to reach out
to a large set of people
5) Utilising institutions such as the Industrial Technical Institutes (ITI)
to create a very good support mechanism.
6) Mobile telephone can also be used as a mechanism for payment
mechanism, thus aiding further reach for certain goods & services.