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Restricted Access: Telecom operators face hurdles in tapping the rural market

July 03, 2014

Despite the growth in India’s rural subscriber base over the past few years, the rural teledensity has continued to remain low. As of March 2014, the rural teledensity in the country stood at 43.96 per cent. This is a dismal figure when compared to the urban telecom penetration of 145.78 per cent, indicating a significant gap between telecom service uptake in urban and rural areas. Lack of operator interest in the rural segment can be cited as a key reason for the low telecom density in these areas. Operators have found it extremely challenging to tap this market due to several issues such as the underdeveloped ecosystem, inadequate telecom infrastructure and limited government support.

tele.net takes stock of issues and challenges that have hindered the growth of rural telecom penetration over the years…

Lack of incentive for operators

The primary challenge faced by telecom operators is the low ARPU in rural areas. Even though the services offered to this segment may entail lower tariffs, several barriers to the uptake of those services result in lesser minutes of usage and MBs of data used, thereby translating into lower revenues and profits. This, in turn, has compelled operators to continue focusing on high-ARPU regions such as the metros and Category A circles. Even in terms of expanding their services, operators look to Tier II and Tier III cities, where not only is the rolling out of infrastructure more cost efficient in comparison to rural areas, but uptake is also more promising.

Underdeveloped VAS ecosystem

One of the primary reasons for the lower uptake of mobile services is the lack of availability of relevant and localised content. Rural India is characterised by diversity in terms of spoken languages that vary not only between states but between different towns in a state as well. The importance of localised content has been further established by a recent report titled “Local Language Study 2013” by the Internet and Mobile Association of India and IMRB International. The report, which was based on a survey of 35 cities in seven states, identifies local languages as the single largest growth driver of the internet in rural areas. Further, it states that 43 per cent of non-users of the internet in rural areas have said that they would adopt the medium if the content was provided in their local language. Besides local languages, relevant value-added services (VAS) pertaining to agriculture and e-governance are also crucial in driving service uptake in rural areas. As agriculture is the primary occupation of the rural population, real-time information about the price of crops in the local market and measures to improve the yield becomes important. Further, as settlements are largely fragmented, e-governance helps in bridging the gap between the citizens and the government. At present, the development of these applications is largely at a nascent stage and they have been introduced in only a few states across the country.

Further, traditional approaches such as line communication and word of mouth continue to drive VAS adoption in these areas. Communication mediums such as wall paintings, kiosks, regional papers, roadshows and communication through village-level panchayats and other influential groups are also being used besides traditional outbound dialler-based communication in the form of prerecorded messages.

Access issues

Unbundling the last mile is often the most challenging phase in project execution. As rural areas are characterised by uneven and tough terrain, laying fibre and cables is typically capital intensive. Once the infrastructure is in place, skilled labour is required to maintain it. The lack of trained engineers and personnel in rural areas often adds to the opex incurred by infrastructure providers, thereby limiting their capability of network expansion.

Further, most operators lack a robust distribution channel in rural areas for the sale of recharge vouchers, handsets, etc. Reaching out to rural customers and educating them is a challenge given the poor infrastructure, and lack of transport facilities and resources in these regions.

Socio-economic barriers

Rural areas are characterised by lower levels of literacy and income, which are an intrinsic barrier for telecom service adopttion. The lack of basic literacy skills and unfamiliarity with devices and technology deter them from using mobile phones and broadband services. Moreover, the cost of devices is too high for a significant proportion of the low-income rural population and is  one of the major reasons for the slow uptake of broadband services.

Energy challenge

Another major hurdle faced by telecom operators is the high energy opex for running towers in rural areas. As per the Telecom Regulatory Authority of India (TRAI), energy expenses account for almost 70 per cent of the total opex in these areas, as compared to 15-30 per cent in urban areas. This stark difference stems from the lack of grid availability in most of rural India. According to estimates by EY, the diesel cost for a village site in Maharashtra is Rs 19,000 ($422) per month, whereas it would cost Rs 2,000 ($45) in Mumbai.

As a result, tower infrastructure providers have no option but to turn to diesel generators (DGs) to meet the power needs at rural telecom sites. This leads to a fourfold cost escalation compared to the expenditure incurred at towers installed in regions with grid availability, given the high costs of diesel combined with transportation challenges. At present, the estimated annual consumption of diesel at telecom towers is 2 billion litres. This not only poses a cost barrier to the telecom industry’s growth in rural India, but also leads to high levels of carbon emissions. Tower companies such as Bharti Infratel and Indus Towers are exploring renewable energy-based solutions such as solar-DG hybrids, solar-wind hybrids and fuel cell solutions, but due to their high capex, none of these solutions has been adopted as the primary source for powering telecom towers.

Government initiatives at a standstill

The Universal Service Obligation (USO) Fund, which was established with a view to facilitate financial support for rolling out networks in rural areas, remains largely unutilised. In 2013-14, only 27 per cent of the funds collected were allocated. In fact, since its inception in 2002, 31 per cent of the total funds collected were allocated for rural telecom expansion. These allocations have been used to achieve targets like increasing the rural subscriber base, but the initiatives taken for other goals such as increased internet penetration have lagged behind. Meanwhile, the Rs 200 billion National Optical Fibre Network project, which is being implemented by Bharat Broadband Network Limited to provide 250,000 gram panchayats with 100 Mbps of broadband connectivity each, has been facing repeated delays. It has already suffered a two-year time overrun, with the government failing to award cable-laying and trenching contracts under the first phase of the project. These regulatory issues are, in turn, translating into delays in the provisioning of development-centric, community-based broadband services like e-health, e-education, e-governance and e-commerce. Such roadblocks on account of governmental delays have not only impacted the growth of rural penetration, but also impeded the development that can be brought about by rural connectivity.

The way forward

The rural market holds significant potential for telecom operators and will serve as a catalyst in bridging the country’s digital divide. As a result, overcoming the challenges is crucial for operators. To achieve this, methods such as optimum utilisation of the USO Fund, development of localised VAS applications and increased device and service affordability can be adopted, which will help improve the rural telecom ecosystem to a great extent.


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