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The telecom sector has been a key contributor to India's economic and social development. Communication facilities have changed the way in which a large number of people live and work. While the impact is most apparent in urban areas, rural India has also been caught in the telecom wave. For example, many regions that are still inaccessible by roads –­ even after years of the National Highways Development Programme and similar projects –­ are connected through a telecom network.

This revolution has come about through the conscious effort of the government to bridge the rural-urban divide, and of the operators to cash in on the potential of rural India, where 70 per cent of the population is yet to be tapped.

The situation today is a lot different from a few years ago. Back then, operators would not consider rolling out services in areas with a population of less than 10,000. Now, almost all major operators are set to enter clusters of villages with just 1,000 people.

Government initiatives
Government initiatives and schemes have played a major role in spurring rural telecom penetration. The Department of Telecommunications (DoT) recently signed a contract with the governmentowned Bharat Sanchar Nigam Limited (BSNL) to provide village telephones in 50,000 newly identified villages under Phase II of the village public telephone (VPT) scheme (part of the Bharat Nirman Programme). BSNL has already started work on the project, which involves covering 66,822 villages with populations of over 100 by the end of 2008-09. BSNL will also extend broadband facilities to up to 30,500 villages.

The VPT scheme was launched by the government in 2006 with support from the Universal Service Obligation (USO) Fund. Set up to pay for the installation of basic fixed line telephones in villages, the scope of the fund has been expanded to fund installation of wireless telephones as well.

As an incentive for private operators, DoT has decided to do away with the licence fee on rural landline services. While the government is likely to lose about Rs 2 billion in revenue per year, the decision is intended to increase the penetration of broadband services and give a boost to e-governance. The government has also decided to reduce the USO Fund levy from 5 per cent to 3 per cent of the adjusted gross revenue for service providers who have covered more than 95 per cent of the service areas.

Another major initiative taken by the government is on the infrastructure sharing front. After allowing passive infrastructure sharing and introducing a scheme for shared wireless infrastructure in rural areas through subsidy support from the USO Fund, the government allowed sharing of active infrastructure in April 2008. This will enable operators to reduce the cost of rolling out telecom networks, especially in the remote areas of the country.

Operator plans and strategies
As a public sector unit, BSNL's charter includes serving rural India. The company has largely lived up to this role and has the highest share of the rural telecom market.

The private operators are following suit. Almost all of them have big plans for rural India and have earmarked huge sums for the purpose. Bharti Airtel, as part of its "matchbox" strategy (to be present wherever a matchbox is available), plans to expand its network to 100,000 more villages by March 2009. Reliance Communications (RCOM) too is relying heavily on rural subscriber growth and plans to extend its coverage to 550,000 of the 593,000 inhabited villages in the country in the next couple of months.

A significant 70 per cent of Vodafone Essar's capital expenditure is allocated for building rural infrastructure. BSNL too has earmarked around 6,000 out of its 7,871 new towers for the rural areas. Idea Cellular expects future growth to be fuelled by the rural areas. Says an Idea Cellular official, "In the next three years, we expect our rural subscribers to outnumber the urban ones."

Keeping in mind the highly pricesensitive nature of the rural markets, all these operators have tied up with handsetmakers for low-end phones. The trend was initiated by RCOM in 2005, when it launched its range of Classic handset costing a mere Rs 777. Bharti Airtel, Vodafone Essar, Idea Cellular, Tata Teleservices, Spice Mobile (now part of Idea Cellular) and BPL Mobile have entered into similar tie-ups. The latest operator to join the fray is BSNL. In September 2008, the company shortlisted Chinese firm Haier Mobile to provide CDMA handsets under a bundled scheme which will be launched by end-2008.

Operators follow a varied distribution system in the rural areas. Apart from the traditional three-tier distribution system –­ service providers-distributors-retailersend-users –­ operators are beginning to tap new distribution channels like post offices, public distribution system outlets, etc.

Airtel, for instance, has tied up with Indian Farmers Fertiliser Cooperative Limited (IFFCO) to form a company, IFFCO Kisan Sanchar Limited (IKSL), for marketing its products in rural Tamil Nadu. IKSL will also provide value-added services like information on mandi prices, farming techniques, weather forecasts, etc.

Reliance has come out with an erecharge facility for its rural customers. Also, Reliance World services have been customised to meet rural requirements such as services in regional languages and provision of the latest mandi prices. Similarly, other operators are inking deals with various distribution channels like DCM Shriram's Haryali Bazaar stores and Godrej's Aadhar stores.

Emerging trends
With telecom services gaining ground in the rural areas, a lot of myths have been broken. A senior official at Bharti Airtel says: "We expected that the sale of erecharge coupons in rural India would be low. But 90 per cent of all recharges in Bihar and Uttar Pradesh, which have a large number of rural subscribers, are through e-recharges. The second myth was that rural India is not brand conscious. But the reality is that the biggest mobile brand in rural India is Airtel and the highest selling mobile phone brand is Nokia. Third, while many think that it is difficult to get a mobile connection in the rural areas, it is almost as easy to get a connection in a village as in a city. Virtually every village has five retail shops selling connections. Fourth, rural customers are as demanding as urban ones when it comes to customer services, which should not to be ignored."

Another key trend in the rural areas, where power availability is a major issue, is the adoption of energy saving methods and the use of alternative power solutions such as solar and wind by telecom companies. Power forms a major chunk of the operational cost of telecom networks –­ the average opex for a base station in India is Rs 65,000, of which around Rs 23,000 is spent on energy.

Many vendors are betting big on ecofriendly base transceiver stations (BTSs) for the Indian telecom market. Nokia Siemens Networks, for example, is setting up 3,500 green BTSs every month. These reduce energy consumption by 70 per cent and cut telecom companies' opex by up to 40 per cent. Operators will have to increase the use of these technologies to provide quality services in the rural areas.

Rural broadband
The biggest advantage of mobile telephony is that a single cell site caters to many customers, unlike wired telephones where a substantial part of the infrastructure is specific to a subscriber. Wireless broadband, or Wi-Max, also has the same advantage. Hence, to cut down costs and to accelerate broadband penetration, both operators and the government are pushing wireless broadband in the rural areas.

With upcoming Wi-Max spectrum auctions, DoT has also announced a project to provide wireless broadband connectivity to 5,000 blocks in the country. A major initiative, the project will be funded by the USO Fund and will cover villages within a 10 km radius of the block headquarters. At present, BSNL provides wireless broadband services in 1,000 out of the about 6,000 blocks in the country.

Private players are also choosing the Wi-Max route. The key telecom operators using Wi-Max for rural connectivity are Bharti Airtel, RCOM, Sify and Tata Communications. Tata Communications, for instance, has planned an investment of $500 million by 2010 for its wireless broadband venture on the Wi-Max platform and has entered into a partnership with US-based Telsima Corporation for sourcing equipment.

Amongst vendors, Motorola is strengthening its presence in the Indian hinterlands through extensive broadband wireless access (BWA) projects for the state governments. Alcatel-Lucent has set up a joint venture with C-DOT (the research and development arm of DoT) to focus on BWA/Wi-Max solutions for rural connectivity. The company has completed field trials using Aircel's licensed Wi-Max spectrum, and the technology is ready for commercial deployment.

With a lot happening on the Wi-Max front, India is expected to have the world's largest Wi-Max deployment by 2012.

Issues and challenges
However, there remain challenges to these ambitious rollout plans. These include India's low PC penetration, the high operational cost of deploying and maintaining networks, lack of equipment security and limited spectrum. The companies are keenly watching how the Wi-Max spectrum auction pans out.

Moreover, a major effort is needed from the operators to meet the rollout obligations. While the first phase of the rural mobile project supported by the USO Fund received a huge response from the private operators during the bidding process, the actual rollout has been delayed with operators achieving less than 50 per cent of the targeted coverage in the first 15 months. Of the target of rolling out 2,307 base stations by July 2008, the actual achievement stood at 1,000. The overall target is to roll out mobile infrastructure in 500 districts, covering 250,000 villages with over 2 million people. BSNL alone has bagged the contract for setting up 6,125 of the total 8,000 mobile towers. However, by July 2008, it had set up only 102 towers. The operators cite security concerns, poor weather and tough terrain as the major reasons behind the shortfall.

All in all, significant progress has been made in connecting rural India. With DoT ensuring a viable environment for the operators to enter the hinterland, India's aim to become the largest telecom market in the world does not seem to be a mere dream.

Rural growth
Mobile penetration in the rural areas is quite low at about 9 per cent. While it has reached double digits in prosperous states like Punjab, Kerala and even Himachal Pradesh, the overall mobile penetration remains way below that in the urban areas, where the figure has risen to 70 per cent. BSNL commands the lion's share of the rural mobile market by virtue of its massive network coverage.

In Category B circles, comprising Kerala, Punjab, Haryana, Uttar Pradesh, Rajasthan, Madhya Pradesh, West Bengal and the Andaman & Nicobar Islands, operators added about 3.4 million new mobile users per month during the period January to August 2008. In comparison, the monthly average addition was about 2.12 million in 2007, 1.46 million in 2006 and 639,328 in 2005.

Category C circles are also witnessing a similar trend. The average monthly subscriber addition so far in 2008 is 1.21 million, compared to 0.78 million in 2007 and 0.60 million in 2006.