With urban teledensity crossing 100 per cent, telecom operators are targeting the rural and remote areas to push further  growth. Both the government and private operators have taken significant measures to expand their reach in these areas. These include initiatives in service and product innovation, operational excellence, partnership with non-government organisations, employment of local entrepreneurs and innovations in energy management.

As a result, telecom penetration has grown at a rapid clip in the past three to four years. The results are reflected in the rural teledensity, which has increased from 2 per cent in 2006 to 33.79 per cent as of March 2011.

However, there is still a long way to go. The fact remains that out of the total 811.59 million subscribers in the country, only 33.35 per cent are rural users. Also, the sector continues to lag behind in terms of broadband penetration.

Current status 

The rural wireless subscriber base witnessed a sharp growth of 41.11 per cent from 200 million as of March 2010 to 282.23 million as of March 2011. Its share in the total wireless subscriber base increased from 32 per cent in March 2010 to about 34 per cent in March 2011. The wireless segment played a major role in the spread of rural telephony. Almost 97 per cent of rural connectivity is through the wireless platform.

The government and state-owned operators have played a key role in expanding rural telephony. Bharat Sanchar Nigam Limited (BSNL), for instance, has a vast telecom network, covering the remotest regions of the country and accounts for 34.46 per cent of rural wireline subscribers. In spite of the fact that the company’s rural operations have proved to be financially unviable and were the key reasons for its reported losses during 2009-10, BSNL continues to provide telecom services in the remote and rural areas.

The rural sector is high on the priority list of private operators as well. Given that the ARPUs from this segment are much lower than those in urban areas, private operators are devising business plans that are feasible for these regions. Both services and end-user devices have been customised keeping in mind the target users.

Currently, private operators are leading in terms of rural wireless subscribers. Bharti airtel has the highest share in rural areas with 60.85 million subscribers, followed by Vodafone Essar with 47.76 million and Reliance Communications (RCOM) with 27.08 million. Idea Cellular has the highest share of rural wireless subscribers (40.67 per cent) in its total subscriber base.

According to the Telecom Regulatory Authority of India, 91 per cent of the villages are covered by at least one operator. Overall, 51 per cent are covered by three operators and 31 per cent by four operators. Many factors like low handset costs and tariff rates, lingual options in handsets and innovations like solar-charged handsets have been key drivers in the growth of rural telecom. The provision of relevant content and customised services has resulted in easy and rapid adoption of telecom services.

While voice services have grown over the years, rural broadband penetration remains a key cause for concern in India. Currently, rural areas account for less than 500,000 of the total 11.87 million broadband connections. The key impediments to its growth are the low income of the rural population, limited PC penetration, high cost of devices and issues like last mile optic fibre connectivity.

However, the government is focusing seriously on this segment. It has finalised a plan to provide rural broadband connectivity to all 250,000 panchayats in the country over the next three years. Also, according to the Department of Telecommunications, funds worth Rs 180 billion have been allocated for building the rural broadband network.

The government recently announced a project to develop a Rs 200 billion national optic fibre network for providing connectivity to the hinterland. Sam Pitroda, adviser to the prime minister on public information infrastructure and innovations, has been spearheading the project, which envisages the building of 2,500,000 km of optic fibre cable (OFC), the largest such project to date. The project involves setting up a special purpose vehicle (SPV) comprising state-owned operators like BSNL and MTNL as well as other public sector undertakings such as RailTel Corporation of India Limited, Gail (India) Limited, and Power Grid Corporation of India Limited, which already own OFC. The capital expenditure for the SPV will be met from the Universal Service Obligation Fund. The final structure of the SPV is yet to be decided as DoT wants to limit the holding of state-owned operators to 49 per cent, with the remaining being owned by private companies. The maximum ownership by a single firm is limited to 26 per cent.

In a first-of-its-kind move for the communications ministry, Pitroda has set up a panel comprising the chief executives of leading telecom companies such as Bharti airtel, Reliance Communications, Tata Communications, Hathway Cable, Tikona Digital and You Telecom to oversee the implementation of the project. Nandan Nilekani, chairman of the Unique Identification Authority of India, and representatives from the education, rural development and health ministries, the Panchayati Raj and the Planning Commission have also been brought in.

Rural telecom initiatives 

Since providing telecom services in rural areas was considered financially unviable, the government started providing support to private operators for rolling out services in these areas. It established the Universal Service Obligation (USO) Fund with a commitment to provide telecom services to the rural population. Several projects have been rolled out under the USO Fund to extend connectivity and bring services to the doorstep of rural consumers.

Going forward, growth in the rural telecom segment will continue to gain momentum as operators set up infrastructure and widen the coverage of both voice and data services in these areas with help from the USO Fund.

Operators are also adopting renewable energy solutions at their sites as grid connectivity in these areas is a concern. According to technical experts from tower companies, the telecom industry is looking for renewable and hybrid solutions that can meet the needs of the rural population and be financially viable.

Challenges 

Although a lot of progress has been made on the rural front, some issues continue to plague the sector. The population density in villages is very low, which makes operations less viable for telecom companies as there are fewer subscribers per base transceiver station (BTS), the cost of setting up rural infrastructure is very high, and rural ARPUs are low.

Also, telecom operators face issues in land acquisition, obtaining approvals from quasi-government authorities like panchayats for setting up of BTSs, etc. Laying  optic fibre cable also poses problems due to right-of-way issues. Hence, operators are still struggling to make a business case out of their rural operations.

In light of these problems, telecom companies are reluctant to roll out operations in  rural areas. For instance, RCOM and Bharti airtel recently approached the government, seeking to prematurely exit the rural telephony scheme under the USO Fund subsidy without fulfilling the commitment they had made after winning the bids in 2007. RCOM has less than 500 active base stations out of about 8,000 committed by it while Bharti is providing services at 900 of the total 1,174 sites assigned to it.

In addition, power and fuel contribute to about 25 per cent of the total network cost. In rural areas, this cost is even higher given the erratic power supply and almost no grid power availability. Industry experts are of the view that the government should treat telecom as an essential service and BTS sites be exempt from power cuts.

Opportunities 

The rural areas present a huge opportunity for growth. About 70 per cent of the population lives in rural India, spanning 492,000 villages, and  contributes 45 per cent to the country’s GDP. Telecom players across the value chain – including operators, tower companies, equipment vendors and handset providers – are looking to tap this potential.

The launch of 3G and broadband wireless access (BWA) services is expected to open up new opportunities for operators catering to rural areas. So far,  issues like insufficient infrastructure, lack of last mile connectivity and high cost of end-user devices have constrained services. 3G and BWA can address these issues and extend the reach of broadband to these areas. The declining price of smartphones and availability of 3G-enabled handsets at prices as low as Rs 1,500 will augment the adoption of these services. Operators are also working in collaboration with vendors to bring down the price of dongles and PCs. Consequently,  data services will be more accessible and affordable for rural customers in the future.

Today, access to telecom services has brought the rural population closer to the rest of the world and made them aware of the opportunities beyond their geographical boundaries. The rural population – whether it is rural women, farmers, landless labourers or small-scale industry players - is increasingly benefiting from telecom services.

The industry has also created employment opportunities. Income-generating activities like selling recharge coupons, prepaid cards, battery-charging facilities and renting out mobile phones have emerged over the years. Many of these activities are led by rural women, thus opening up avenues for additional family income.

Telecom has the potential to enable the provision of much-needed banking services to rural users as mobile phones are now available in the remotest parts of the country. Mobile banking is expected to lead to financial inclusion and offer easy access to banking services. Most of the operators have tied up with banks and started offering these services.

In the long run, it is expected that the rural subscriber base will witness a compound annual growth rate of 35 per cent between 2011-12 and 2013-14. Also, realising the benefits of access to telephony, today, rural consumers are willing to spend 4-8 per cent of their income on mobile telephony.

Conclusion 

The rural telecom segment has come a long way since the days when it was hard to find a single phone in an entire village. However, the issues hampering the growth of the sector are far from resolved. What is required is a combined effort by both the government and the private sector to accelerate telecom growth in these regions.