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Breaking New Ground: Operators explore the rural market potential

July 03, 2014

Rural teledensity has improved over the past several years, but there is still a large untapped potential for the growth of telecom services in these areas. Limited connectivity and the lack of locally relevant content are among the key challenges impeding the uptake of telecom services in the rural areas of the country. A combined effort by all the stakeholders, along with government support, can help overcome these challenges. Telecom analysts and industry players share their views on the status and key issues faced in telecom service roll-outs in rural areas, strategies to tap the potential of these areas and the expected evolution of the rural telecom landscape…


What is the status of telecom service roll-out in rural areas? What are the key challenges impeding service uptake in these regions?

Benoy C.S.

The Indian telecom sector has done well in the past decade and a half. While the sector went through a turbulent phase in the recent past, having been hit hard by regulatory uncertainty, scams and licence cancellations, it is now poised for the next phase of growth. According to the Telecom Regulatory Authority of India, as of March 2014, India had 533 million urban and 372 million rural mobile subscribers. The rural subscriber base accounts for 41 per cent of the total mobile subscriber base. While the growth has been stupendous in the urban areas with teledensity increasing to 145 per cent, the rural areas still remain largely untapped, with a teledensity of less than 44 per cent. The next phase of growth will be driven by network roll-outs and increased investment in the rural areas.

Telecom service providers find adding capacity in the existing circles financially more viable than rolling out networks in new areas. Expansion in the existing circles requires less investment than adding new sites. Besides, the sector has witnessed negligible telecom infrastructure spending on network roll-outs in the last few years, owing to difficult market conditions and the stretched balance sheets of service providers. In addition, low returns on investment in rural areas compared to the high network roll-out and sales service costs have thus far discouraged service providers.

Sameer Dave

A country’s social and economic growth is seen to be largely enabled by telecom connectivity. While the telecom revolution has largely been an urban phenomenon, rural India presents a huge untapped potential, given the low teledensity of 43.27 per cent compared to 139.86 per cent for urban areas. The key challenges in rural areas are as follows:

•Unreliable/Erratic power supply and poor grid connectivity: According to the 2011 census, barely one in every 10 households in rural Bihar has grid access and around 45 per cent of rural households still use kerosene for lighting. Similar cases can be observed in the rest of the country as well. This kind of erratic power supply is one of the impediments to rural roll-outs. Telecom equipment needs to be backed up by generators, which entail high operating costs.

•Backhaul and last mile connectivity: Installing fibre-based networks is a capital-intensive affair due to factors such as long stretches for fibre construction, expensive land acquisition, as well as other issues related to operations and maintenance (O&M).

•Lower revenue (low ARPUs): The rural telecom market is currently skewed towards voice and the uptake of data in these regions is still at a nascent stage. In addition, ARPUs in rural areas are low owing to factors such as low literacy levels, meagre income, restricted mobility of the workforce and other social issues.

•High opex: O&M costs are very high in rural areas due to the need for ensuring equipment security and 24x7 energy access. Other challenges relate to the unavailability of trained manpower, battery maintenance and replacement, especially because of frequent deep discharges, etc.

Hemant M. Joshi

There are 377 million rural subscribers in India and the overall rural teledensity is around 44 per cent. As rural areas are more price sensitive, operators initially focused on rolling out services in urban areas. However, in the past few years, they have been deploying mobile services in rural areas since nearly 70 per cent of the population still lives in these areas (as per Census 2011), thereby representing a big market. Lack of connectivity, local content, regional apps and awareness about the benefits of using mobiles are some of the challenges impeding service uptake in rural areas.

What is the scope of broadband services in rural areas? What are the key growth drivers for these services?

Sameer Dave

Data penetration in the country is on the rise, yet, a vast majority of the rural landscape remains untouched by the evolving information and communication technology due to the lack of internet access. The need of the hour is to create awareness about technology and subsequently increase computer penetration or provide suitable and affordable alternatives. People residing in these areas must be made to realise that broadband can significantly improve their level of learning as well as household income. Some of the effective uses of the internet in such areas are timely weather forecasts, information on new technologies related to agricultural activities such as farming, health awareness and mandi prices.

The key growth drivers for broadband services in rural areas include:

•Tele-education: Effective broadband roll-out in rural areas enables the flow of relevant information, resulting in access to better education. The benefit of such education can be reaped by residents of these areas, without impacting their day-to-day work or migrating to other regions.

•Telemedicine: The telemedicine market has witnessed massive growth during recent years, mainly because of convergence in the areas of IT, communication and medical science. The adoption of new services by urban hospitals is expected to trigger the boom in rural health care. New-age smart devices are also contributing through the use of various apps that deal with pulse, blood pressure monitoring and ECG, making it easier for doctors and paramedics to offer localised advice.

•E-governance: State governments are increasingly using the internet to deliver services in remote locations through various applications. Electronic file handling, public grievance systems and routine transactions such as payment of bills and tax dues are some of the services that have begun to gain traction in rural areas.

•Mobile banking: The majority of the population in India does not have access to basic financial services. Over the past few years, mobile banking has been gaining acceptance and is expected to contribute significantly to financial inclusion in the country. For instance, Aircel, in partnership with ICICI Bank, has launched the Aircel Smart Pay service in six cities – Delhi, Mumbai, Kolkata, Chennai, Coimbatore and Jaipur, which enables customers to transfer money to any bank account in India from a designated Aircel retail outlet. In addition to money transfer, customers can also perform mobile and DTH recharges, bill payments, etc.

Hemant M. Joshi

The internet in rural areas is mainly available through 2G or 3G wireless access due to the lack of fixed broadband. There is huge potential for broadband services in rural areas. The key growth drivers would be the proliferation of low-cost smartphones, availability of local language content and relevant apps, which are directly helpful in gaining information on produce prices, weather forecasts, new farming methods, etc.

What strategies should operators adopt to tap the rural potential?

Benoy C.S.

Bridging the digital divide and increasing telecom penetration in rural India would require concerted efforts from the government as well as the private sector. Along with government initiatives to encourage the setting up of rural infrastructure through tax holidays and funding options, service providers need to find means to profitably deliver solutions tailored for rural customers by addressing the key issues of low ARPUs and high network roll-out costs. Sales and servicing costs also need to be controlled for services provided in these regions. Innovative and collaborative business models to increase distribution reach can help control these costs. The ecosystem needs to come together and not only offer relevant content/services in local languages, but also educate users about the benefits of such services in their regions.

Sameer Dave

•Specific business models need to be developed after understanding the service needs of rural customers. Rural demand needs to be enhanced through lower-cost devices, greater digital literacy and the development of relevant regional content. It can also be increased by developing supplementary services like entertainment, distance education and health care.

•Operators must collaborate to address the high investment costs to overcome infrastructural challenges.

•Sales and customer services can be improved by collaborating with private and government sector entities with a wider reach. This will help avoid high operation costs during the initial phase of roll-out.

Hemant M. Joshi

The rural market is very different from the urban market. The challenges faced by rural people in terms of basic infrastructure for education, health care, banking, etc. offer several opportunities for operators to innovate and capture this huge market by rolling out m-health, m-education, m-banking and other mobile/broadband-based services. With this strategic view, partnering with various stakeholders in the relevant mobile value-added services value chain would be beneficial.

How do you see the rural telecom landscape evolving in the future?

Benoy C.S.

The government needs to boost telecom infrastructure in the country and encourage greater penetration in rural areas. Policies to encourage network expansion would help rural telecom penetration and achieve the National Optical Fibre Network (NOFN) target of connecting 250,000 gram panchayats. Fresh expansion and roll-out of networks in rural areas would be a step towards bridging the digital divide. Also, telecom infrastructure would help provide crucial government and utility services through mobiles. Mobile banking will ensure greater financial inclusion and offer other mobile-enabled valued-added services like health care and education to the rural masses besides helping in effectively utilising the telecom network for the delivery of  important public services.

Rural India presents a tremendous opportunity for growth and service providers will increasingly look to tap this market now that the urban market has saturated. However, it will take a few years for the rural markets to develop. Nonetheless, with the growing penetration of mobile phones and smart devices in rural areas, and the increase in disposable income and spending power, the rural market will become even more attractive.

Sameer Dave

Rural telecom is set to evolve beyond the stereotype and will help in improving the overall economy. On the service provider’s end, steps like providing relevant (customised) applications (like e-choupal) and content, and low-cost equipment and technologies, developing a business model relevant to the rural scenario and ensuring proper utilisation of corporate social responsibility funds to bring literacy and awareness will help. The Department of Telecommunications has taken various initiatives like setting up the Universal Service Obligation Fund and is implementing the NOFN project in order to develop infrastructure for the rural areas. The National Telecom Policy, 2012 is also putting more emphasis on rural broadband roll-out. In addition, various programmes are being undertaken to increase computer awareness and penetration by making low-cost computers available, which are also distributed through various government schemes.

Hemant M. Joshi

The key to the future of rural telecom would be the launch of low-cost smartphones, local content and apps targeted at the basic needs of the common man. As the urban market is saturated with a teledensity of over 145 per cent, operators are focusing on capturing the rural market where there is still immense potential for voice services. Also, the government’s Broadband for All objective, covering all village panchayats with high speed broadband, will go a long way in empowering rural communities, thereby creating a demand for better local and regional content for infotainment.


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