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Bridging the Digital Divide - Initiatives and challenges in increasing rural telecom penetration

June 15, 2010
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In keeping with the trend since 2006, rural telecom penetration continued to witness rapid growth in 2009-10 as well. The penetration of telecom services in rural regions rose by 50 per cent over the previous year, with rural teledensity increasing from 14 per cent to over 21 per cent at present.

As in urban areas, in these regions too, mobile services have propelled the growth in teledensity. Together with the government and key vendors, telecom operators have been successful in targeting the subscribers in the rural regions.

This is clearly evident from the fact that a large proportion of the 18 millionplus monthly wireless subscriber additions are from Category B and C circles; in fact, as of April 2010, these circles accounted for nearly 60 per cent of the total subscriber additions.

Current status
The rural wireless subscriber base, which stood at 164 million as of December 2009, has witnessed an exceptionally high growth rate of 76 per cent during the year vis-à-vis about 31 per cent in 2008. Its share as a proportion of the total wireless subscriber base also rose from the 23-25 per cent levels in 2008 to about 31 per cent in December 2009.

A number of socio-economic and politically enabling conditions such as ease of use, liberalisation of the telecom sector and low-cost handsets have contributed to the expansion and popularity of mobile telephony in rural areas. While these high growth rates have been possible largely due to the private operators, the government has also played a key role in increasing rural connectivity. For instance, approximately 6,900 towers have been set up under the first phase of the Universal Service Obligation (USO) Fund's shared mobile infrastructure scheme, thereby increasing the coverage in these regions.

Meanwhile, on the broadband front, rural areas account for less than 500,000 broadband connections due to the low income of the population and low PC penetration. Over the next few years, growth in this segment is likely to take place at a faster pace as operators, with the help of the USO Fund, establish infrastructure and widen broadband coverage in these areas, which is vital for economic growth. Moreover, with WiMax likely to be rolled out on a large scale, last mile connectivity issues will be addressed too.

The characteristics of rural areas (low population density, difficult topographical and climatic conditions, erratic power supply, etc.) make it difficult to provide telecommunication services of acceptable quality by traditional means at affordable prices. However, with the introduction of wireless technologies in rural areas, these challenges are being addressed to a large extent. In fact, rural connectivity witnessed significant growth only with the introduction of mobile services in these regions. This is clear from the fact that while rural wireline connections were at a dismal 9.95 million. As of December 2009, the rural wireless subscriber base was at over 164 million.

On the technology front, there are a number of options available for rural areas. For instance, villages near a larger town are capitalising on the advantage of the fibre backbone while remote villages are connected via a VSAT link. With WiMax likely to be launched on a larger scale in the near future, a point-to-point or point-to-multipoint Wi-Max link from the fibre backbone can be used to connect one or more villages near the town. This will enable the technology to provide connectivity among all rural community groups in a village using long-distance Wi-Fi technology. Similarly, 3G services will play a key role in enabling e-governance applications in rural areas. Industry experts are now exploring the possibility of deploying Ethernet in these regions. According to them, the internet centres in rural areas, which are equipped with point-to-point Wi-Max connections, can easily provide Ethernet services across the country. This will prove to be beneficial not only for residential purposes, but also for businesses that want to expand their horizons, and reach the not-yet-saturated markets of the country. Even applications such as video, which are the best mode for communicating with the rural populace, given its low literacy rates, are best provided through Ethernet.

With a huge population of 720 million in 630,000 villages across 3.2 million square miles, and a massive economy accounting for over 50 per cent of India's total GDP, these regions clearly present a huge growth opportunity for the entire telecom ecosystem including telecom operators, value-added services providers, and handset and equipment vendors.

Mobile telephony has turned out to be a catalyst for economic growth for rural consumers. The accessibility to a mobile phone has enabled previously marginalised groups such as women, landless workers, herders, fishermen, small-scale farmers, indigenous people with no access to basic services, and the illiterate, to take an active part in the economic and social spheres of their communities. Mobile phones have also spearheaded a host of new and innovative income-generating activities such as small businesses to recharge batteries, selling of prepaid cards, renting out phones and/or airtime and other services like reading, typing and sending text messages.

This social and economic inclusion has led to the willingness of poor rural households to spend 4-8 per cent of their income on mobile telephony. In terms of financial services too, rural consumers has limited access to loans and deposits compared to their urban counterparts. This issue can also be addressed by mobile connectivity. For example, the mobile phone can be used to provide financial services to millions of rural people who can receive money from relatives who have migrated to urban areas, and to deliver microcredit loans to the poor where there are no banking facilities.

Even as the government and telecom operators collectively step up efforts to enhance telecom coverage in rural areas, there are some bottlenecks that need urgent attention to enable rapid growth in these regions.

First, rural India is plagued by the nonavailability of backhaul and last mile connectivity. While the incumbent telecom operators are now considering unbundling the last mile, concrete steps in this direction are yet to be taken. Until recently, they were against the sharing of the last mile and were using it as a competitive advantage to push back new entrants.

Further, with most of these areas not being served by the power grid, erratic power supply continues to impede growth, and accounts for as much as 80 per cent of the opex in rural regions. Some areas may get "agricultural power", which is two hours in the morning and evening but even this is an exception. In some states, the average availability of electricity is only three to four hours per day. While operators and vendors are now working towards developing energy efficient and alternative energy solutions, a lot still remains to be done in this regard. Going forward, energy management is going to be a key focus area for the industry.

Availability, or lack thereof, of roads is another important issue. In hilly terrain like Himachal Pradesh, the cost of transporting equipment is equivalent to the cost of the equipment itself. With poor roads and no significant infrastructure, it may sometimes be difficult to even find sites to install the base stations. With high illiteracy levels, there is a dearth of trained manpower, which makes the installation and maintenance of telecom networks all the more challenging.

With the cost of network rollout in these regions being high, and disposable income of the rural consumer and population density being low, the business case for operators in these regions is not viable. However, Indian operators have shown that they can be profitable at the lowest tariffs in the world. In rural regions, where ARPUs are likely to be in the range of $2$3, operators are coming up with innovative strategies like infrastructure sharing and low-cost base stations to reduce the cost of network rollout.

While significant progress has been made on the rural front in terms of teledensity, the digital divide continues to increase, with penetration in urban areas at over 100 per cent. Clearly, a lot remains to be done to bridge this divide, and a continued collective effort from the government and operators is necessary to accelerate growth in these regions.

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