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Rural Expansion Strategies - Key drivers for telecom uptake

June 15, 2010
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With the rural teledensity expected to double in the next few years, operators are increasingly adopting strategies particularly suited to tap subscribers in these regions. However, despite the increasing focus, the country continues to be plagued by a large rural-urban digital divide. Leading industry experts offer their views on what needs to be done by the operators to expand their rural presence, government initiatives needed to step up this growth, likely role of 3G and Wi-Max in this space, and the major challenges impeding rural uptake...

What are the key strategies adopted by operators for expanding their operations in the rural areas?

Manu Khera
India is expected to add more than 300 million subscribers between 2010 and 2012. Of this, more than 50 per cent will come from the rural regions, increasing the rural telecom penetration from the current levels of a little under 23 per cent to over 43 per cent by 2012.

While focusing on the expansion of operations in the rural areas, most operators will consider two important aspects -­ maximising the rate of interest from the existing sites and exploring new coverage areas. Apart from these, expanding the existing distribution network, introducing customer-friendly products and enabling effective customer services will help to drive rural penetration for the operators. Apart from the identification of the rural consumers' needs and the development of relevant content, the provision of these services to the rural populace will be a greater challenge. One way to do this is to communicate through short messaging services (SMSs) in regional languages, for which a separate SMS gateway needs to be established.

Capitalising on the existing distribution models and riding on the available infrastructure to improve and expand distribution, etc. will help operators penetrate deeper into the rural areas without increasing their expenses.

Mohan Krishnan
On the demand side, the challenges are twofold -­ to increase penetration and to grow the usage levels of voice and data. Operators need to work on all four Ps (products, pricing, promotion and business potential) to grow their business in the rural markets. They need to invest more in consumer knowledge in order to deploy appropriate products (handsets) and service offers. Solar handsets and shared SIMs are examples of efforts in that direction. Pricing is another area of focus. The cost-conscious rural market has the potential to increase usage through dynamic tariffs, which would instill confidence in the customer. Promotion and distribution are two other key areas of investment. With regard to these, operators have been reaching out to rural customers by providing explanations in regional languages and offering them support in service-related issues.

The key issue on the supply side will be that of infrastructure, which involves towers and power supply. The solution is to properly assess the business potential of the regions covered and to share infrastructure. Further, research and development is required to reduce operational costs while servicing the rural markets.

Sridhar Pai
Today, Bharti Airtel, Reliance Communications (RCOM) and Aircel each have a higher percentage of their market shares coming from Category C circles ( the rural circles) than Bharat Sanchar Nigam Limited (BSNL) or Mahanagar Telephone Nigam Limited (MTNL), which are supposed to be the major rural communication providers. Each operator has its own strategy for the rural markets.

What should the government do to step up rural telecom penetration?

Manu Khera
Rural India is still, unfortunately, on the wrong side of the digital divide, which prevents a significant portion of our population from attaining their full potential.
Given that communication is a human need and right, and that a strong communication network enables commercial and social ties, it is essential that we bridge this divide between urban and rural India.

The majority of the potential 100 million new rural subscribers will be first-time users and, therefore, special efforts through awareness programmes, customised value additions, and innovative marketing and pricing will be required so that they identify the telephone as a basic amenity such as water, electricity and roads. Government support in terms of offering subsidies in call charges from rural sources (offering free minutes per day, etc.) will become a motivational factor among rural subscribers to drive further penetration.

While a large number of areas have access to electricity, the supply is quite unstable and unreliable. The government's support in subsidising power costs for the development of and penetration in rural markets will help to bring down the operators' expenses and encourage them to increase their focus on these areas.

RCOM's earlier initiative of introducing residential direct exchange lines, where handsets were offered to customers at a subsidised rate, proved to be a successful one. Initiating such proposals will help to add to the number of rural subscribers.

Mohan Krishnan
The government needs to take notice of the lack of focus on the wireline segment. Seventy per cent of the country's population still lives in the rural areas, where there are hardly 5 million internet users. With India's aspiration to play a leading role in the global arena in the twenty-first century, this growing digital divide is clearly an area that the government needs to work on. The Indian Market Research Bureau has prepared the Confederation of Indian Industry broadband policy report where it has recommended that the government should spend Rs 180 billion from the Universal Service Obligation (USO) Fund to connect 200,000 gram panchayats through an optic fibre cable link, which would then be shared across operators to bring broadband to rural India through whatever last mile technology that can be provided at a low cost. This recommendation is under active consideration.

Sridhar Pai
The government should allocate the USO funds towards rural base transceiver station deployments in a technologyneutral fashion across the country.

What is the status of broadband in the rural areas? What role are Wi-Max and 3G expected to play in this field?

Manu Khera
As a part of the USO initiative, the government signed an agreement with BSNL on January 20, 2009 under the rural wireline broadband scheme for providing wireline broadband connectivity to rural and remote areas, including gram panchayats, by leveraging the existing rural exchange infrastructure and copper wireline network. The speed of "alwayson" broadband connection should be at least 512 kbps.

Under this scheme, BSNL will provide 888,832 wireline broadband connections to individual users and government institutions, and will set up 28,672 kiosks by 2014. The estimated subsidy outflow is Rs 15 billion in five years' time, which includes subsidies for 900,000 broadband connections, customer premises equipment, computing devices and kiosks. As on January 31, 2010, 106,070 broadband connections had been provided and four kiosks had been set up in the rural and remote areas.

Rural broadband penetration rates would receive a major boost if the USO Fund is extended to wireless broadband technologies such as broadband CDMA, 3G and Wi-Max. Support from the USO Fund will ensure the viability of deployment of wireless broadband and make it available in every Indian town and village. This will help to significantly scale up PC adoption, internet usage and information technology (IT) capabilities in the country by spreading the IT revolution from urban pockets to remote rural locations. Rural broadband can also enable access to e-healthcare, e-governance and e-learning services.

Mohan Krishnan
The uptake of telecom services in rural areas is poor as both demand and supply conditions are adverse. At the current prices, it is difficult to see a strong demand. Both 3G and Wi-Max will have a role to play in increasing demand. As per our estimates, half the demand can be generated through the wireless segment.

Sridhar Pai
Currently, the market for the rural user base is small. However, it will grow within two to three years. Fixed wireless will probably become the medium of choice. Also, for low average revenue per user markets, a kiosktype solution seems to be most feasible.

What are the key issues impeding the uptake of telecom services in rural areas?

Manu Khera
The lack of basic infrastructure and surface transportation as well as concerns related to constant power supply, quality of education, etc. are some of the key impediments in rural uptake of these services. However, a focused effort in these areas will help to solve these issues to a large extent and help in the development of rural areas, which will also lead to greater telecom penetration.

Mohan Krishnan
A major concern with regard to broadband uptake is that it requires a governmental push. The customer service centre is a good initiative that will provide a boost to the demand for broadband services. The government needs to implement these initiatives effectively and efficiently.

Other concerns are those with regard to infrastructure and the operators' willingness to invest for the long haul.

Sridhar Pai
The lack of education and awareness in the rural regions is a key area of concern. Also, there is a need for innovative ideas to increase market uptake.

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