Connecting Rural India - Key to future mobile growth

The Indian mobile industry has emerged as a key contributor to the country's economy in recent times, a fact reiterated in the annual union budget. To put things in perspective, the mobile industry alone generated Rs 313 billion last year, contributing 1 per cent to the country's GDP. It also employed (directly and indirectly) 3.6 million people, as per a GSMA study. Improved communications infrastructure has, to an extent, also negated lack of development in other core infrastructure sectors, besides the numerous social benefits. Interestingly, the mobile industry's current contribution and achievements are just the tip of the iceberg. Most of rural India still remains untapped.

The last few years have seen the mobile industry register exponential growth to reach more than 60 million subscribers. The mobile subscriber base has already crossed the fixed line subscriber base in the country and at the current growth rates, is expected to surpass the television subscriber base in the next few years. This is largely due to the mobile "affordability" barrier falling significantly, resulting in a shift from mobility being a privilege of the elite to that of the common man, at least in urban India. These are clear signs that the mobile has emerged as the preferred medium of communication and is the new face of the ICT revolution, with the potential to achieve the digital inclusion that everyone has been talking about.

While we revel in this achievement, it is also important for us to focus on a far greater opportunity/challenge – one of connecting rural India. With a population of 700 million, rural India, without a doubt, holds the key to the future growth of the mobile industry and the long-term economic and social development of the country. The good news is that the government and the industry have taken cognisance of the importance of connecting rural India and are taking steps in the right direction to achieve higher teledensity levels.

In took India more than a decade to get to approximately 45 million fixed line subscribers. In the last 10 years since wireless has emerged as a viable option for telephony, we have added over 50 million subscribers, taking the total teledensity to over 10 per cent. Clearly, the most efficient and cost-effective way of increasing teledensity is via the wireless route.

The government, in the Union Budget 2005, announced an outlay of Rs 12 billion for connecting rural India and raised the total planned expenditure outlay for the Department of Telecommunications (DoT) by 21.79 per cent over the last fiscal year to Rs 118.01 billion in 2005-06. It has also initiated a project supported by the USO Fund to provide approximately 8 million lines to rural households by 2007 at a cost of Rs 80 billion, but more needs to be done in this area. In addition, it is looking to address other challenges like spectrum and reduction in import duties on terminals.

The operators, on their part, also realise that rural India will play a key role in their efforts to be national operators and remain viable businesses in the long term. This is particularly important for operators to sustain their growth and meet the expectations of the capital markets in the face of constantly declining average revenue per user (ARPU). Today, the teledensity in Indian villages is less than two phones per 100 people compared with 26 phones per 100 people in urban areas.Imagine the potential!

However, connecting rural India also poses a new set of challenges for operators. Let's take a closer look at what these challenges are and how the operators can go about addressing them.

Challenges for operators looking at rural markets

It is becoming increasingly clear to operators seeking new and profitable growth that they will need to go beyond their established high-spending subscriber base and embrace the virtually untapped rural market. Tapping these markets poses several challenges for operators.

A few key challenges are:

Lower ARPU: The Indian market has the lowest airtime tariffs and one of the lowest ARPUs. The ARPU from customers in rural markets will be even lower.

Higher network cost (capex): Large amounts of capital expenditure (capex) are needed to cover the vast rural areas of the country. This includes investment in switching, transmission, generators, towers/masts, etc.

Higher network cost (opex): The operating expenditure (opex) that is incurred to roll out and operate rural networks is high because of the larger distances to be covered, lower availability of power (need for diesel to run generators), etc.

Handset affordability: Handset costs present one of the biggest barriers to entry for low-income customers in rural areas.

GSMA is driving collaboration between global operators targeting these markets through a special joint procurement initiative that is looking to drive down terminal costs to sub $30.

Strong distribution challenge: TradOperators will need to adopt a dual-market approach. At one end, they will need to continue to nurture their base of highARPU customers while at the other, offer a streamlined, low-frill service to a huge base of lowerincome customers. itional distribution channels need to be enhanced to reach new customers in rural areas. Also, there is a need for efficient and rapid provisioning solutions including electronic refill options to serve the large prepaid customer base.

Looking at these challenges, it is clear that to succeed in such a market it is essential for operators that costs are kept as low as possible and the subscriber base as high as possible. Experiences of global operators tapping similar markets reflect the same. So, having identified the challenges, let's look at how the operators can tackle these.

The way forward

There is a huge untapped demand for mobile services in the rural areas of the country. Recent network launches in circles where few operators exist have shown how good service and competition can lead to massive customer uptake of mobile services. Clearly, operators that venture earlier into such markets with good service offerings are likely to reap higher rewards as they are able to quickly meet the pent-up demand for telephony in the rural areas.

At the outset, rural markets require a new and different strategy from operators – one that focuses on activating first-time users, tailoring products and services to the needs of the consumers while carefully managing their own profitability.

Indian operators will need to adopt a dual-market approach. At one end, they will need to continue to nurture their base of high-ARPU customers while at the other, offer a streamlined, low-frill service to a huge base of lower-income customers. Then, over time, operators can further segment their offerings based on unique subscriber segment needs.

Some winning tips

Five ways to encourage adoption of mobiles among first-time rural consumers are:

Cost-optimised network solutions – Since the site cost is a very significant component of total cost, the most obvious method to drive down cost is to minimise the cost per site with cost-optimised network solutions that reduce both capex and opex. Network vendors have come out with low-cost solutions that reduce the number of sites needed by enhancing the coverage area of each site. Such equipment is typically designed for rural areas and needs less maintenance and less power. A good example is Smart, a leading operator in the Philippines, which deployed an entry-level GSM network solution that lowered the capex and opex in building rural coverage by up to 40 per cent, compared to traditional solutions. Besides this, it is also important to reduce the cost of handsets.Operators should work with handset vendors to come up with low-cost handsets with basic functionality and look at bundling schemes (handset, airtime, tariff, etc.) to drive down costs in rural markets.

Lower-cost handsets: Handset costs present one of the biggest barriers to entry for low-income customers in rural areas. To some extent this problem can be overcome by making low-frill handsets that focus on voice and SMS. However, it is important that handsets are attractive and easy to use. A few handsets that are designed for India are available in the market.

Efficient prepaid top-ups: Prepaid will be the preferred model for consumers in these markets. A significant factor in an operator's prepaid market strategy will be the value of the lowest prepaid denomination. In Asia, the operators most successful in attracting entry-level subscriptions now offer prepaid top-up for as little as $0.5, in contrast to the previous $1-$5 minimum top-up values. The logic behind this is that if the top-up threshold is lowered to $0.5, the user has a lower investment hurdle for topping up the account. From the operator's viewpoint, this means a lower risk of the money being spent elsewhere. By encouraging continuous recharging in this manner, operators keep the subscribers active in the network – even during periods of lower communications activity, thus enabling revenue from other subscribers. Electronic refills (e-refills), as against the traditional scratch cards, provide a profitable way for operators to provide top-ups in very small denominations. Some operators internationally are successfully offering top-ups of less than $0.5 using e-refills.

New innovative services – Introduce relevant entry services such as audio messaging and an entry service platform (SMS, cell broadcast, etc.) for different rural markets. For example, in the Czech Republic, government departments use an SMS solution to inform citizens of natural/manmade calamities and other important information instead of the traditional loudspeakers. Similarly in Uganda, MTN, a local operator, provides an SMS-based service to small farmers informing them of prevailing prices for crops in different markets across the country. This helps them in getting better prices for their crops and eliminating middlemen.

Entrepreneurship – Foster sharing via mobile public call offices (PCOs)/payphones and sharing with friends/family.Operators could provide handsets and connections to people who can provide PCO services on a revenue-sharing basis. Alternatively, they can provide extra minutes or discounted tariffs on higher prepaid denominations, which will encourage people to make a living out of PCO services. Such initiatives, besides providing communications access in rural markets, also promote entrepreneurship. There are numerous successful examples of this in developing markets.

It is evident that the move to tap rural markets benefits all. Proactive operators will dramatically – and profitably – increase their penetration and market share. Rural consumers will enjoy all the life-enhancing benefits of mobility – at a price they can afford. And over time, the well-being and prosperity of the community grows as mobility fosters better levels of personal communication, social interaction and business potential.

Of course, to make this happen, multiple stakeholders (such as the telecom regulator, the vendors, the mobile operators, the investors, the policy-makers and others) will need to work together to create a favourable environment that will allow the rural market to gain socio-economic benefits from communications and boost stronger national economic development. The stakeholders should successfully work together, for the outcome promises a developed and progressive India.

To sum it up, the country is entering the next phase of the telecom revolution, one of connecting rural India. The opportunity and the overall impact outweigh the challenges. Wireless is clearly the most efficient vehicle for this telecom revolution. The mantra is to give people a way to afford mobility and they will make it an essential part of their lives.