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Rural Race: Operator strategies to leverage new market opportunities

July 03, 2014

After playing second fiddle to their urban counterparts for many years, rural markets are now emerging as a key focus segment for operators. This is reflected in the rapidly increasing share of rural subscribers in operators’ total user base. As of December 2013, the rural markets accounted for more than half of the total subscriber base for Idea Cellular (54.69 per cent) and Vodafone India (53.67 per cent). Other operators such as Bharti Airtel, Aircel and Bharat Sanchar Nigam Limited (BSNL) have over one-third of their user base in rural areas.

The overall growth in the rural subscriber base during the last five years has been noteworthy. It has expanded at a compound annual growth rate of 25.72 per cent, from 120.29 million in March 2009 to 377.3 million in March 2014. Moreover, the share of rural users in total users has grown at a rapid clip with the segment currently accounting for close to 40 per cent of the total subscriber base against 28 per cent in March 2009.

Several factors have been instrumental in facilitating this growth. On the demand side, changing consumer preferences in rural areas, improving literacy levels, rising income levels and most importantly, the growing awareness about the benefits of telecom services have increased the user appetite for these services. On the supply side, the expansion of telecom networks, growing affordability of mobile devices, and increasing development of localised and relevant content have been the key growth drivers. The Universal Service Obligation (USO) Fund, through its tower sharing scheme, has ensured wireless network expansion in the hinterland. More than 7,000 towers and about 16,000 base transceiver stations have been installed in rural areas under the scheme. Further, the USO Fund-aided National Optical Fibre Network project is a step forward in bridging the digital divide in the country. The project aims to provide India’s 250,000 gram panchayats with fibre connectivity and use this channel to deliver high speed broadband services to rural users. Challenges related to inadequate power supply at tower sites are also being addressed with improvements in grid conditions and the deployment of alternative energy systems like fuel cells, solar power plants and biomass-based energy systems in some areas.

All these factors have improved the business case for operators to expand into rural areas. However, the need to compensate for the fast saturating urban voice markets is probably the biggest factor compelling operators to turn to rural markets. Net urban user additions have slowed down over the years. Between March 2013 and March 2014, operators added 6.46 million users to their urban base, while the net addition to their rural base stood at 28.51 million. Further, the wireless urban teledensity in the country stood at 139.86 per cent, as of March 2014. In fact, in the Delhi, Kerala, Karnataka and Andhra Pradesh circles, the figures stood at 226.29 per cent, 193.39 per cent, 169.06 per cent and 165.74 per cent respectively, as of December 2013. This is in sharp contrast with the wireless rural teledensity, which stood at a mere 43.27 per cent in March 2014, highlighting the huge untapped potential that the segment has to offer.

In the short term, operators across the board are focusing on data services in the urban markets, and are relying on rural areas to drive voice demand. Since the majority of India’s population resides in rural areas, this segment can no longer be ignored, especially in light of the saturating voice demand from urban markets. In terms of market composition, currently all operators, except Videocon, are present in rural areas. Bharti Airtel leads the pack with a market share of 24.65 per cent (as of December 2013), followed by Vodafone India (23.54 per cent) and Idea Cellular (19.24 per cent).

Even from a data point of view, rural users are exhibiting strong enthusiasm for 2G and 3G (where it is available) services. While rural demand for data services is no match for that demonstrated by metro circles and Tier I cities, it has been growing nonetheless. As per the Nokia MBit Index, Category C circles – which account for the majority of the rural user base – witnessed a 165 per cent growth in 3G payload between 2012 and 2013.

Current status

Rural customers differ significantly from their urban counterparts in terms of their demographic, social and economic profiles. Keeping this in mind, operators have adopted a different set of strategies to better serve these markets. Increasing the availability of locally relevant content, strengthening distribution channels, adopting robust local marketing strategies and improving service and device affordability have been central to operator strategies. In a bid to bring down their opex and capex, operators have adopted outsourcing models and infrastructure sharing. At the same time, government support, both in terms of financing and implementation of rural projects, continues to play a crucial role in the development of telecom infrastructure in these areas.

Operators have made significant efforts to strengthen their sales and distribution channels for better provisioning of services in rural areas. Bharti Airtel has developed a multilayered distribution network and employed small retailers in rural pockets to ensure that recharge coupons are easily available to customers.

Similarly, Vodafone India has rolled out Associated Distributor Vodafone Mini Stores to strengthen its foothold in the rural market.  These are touch points managed by local residents, who are often members of the village panchayat. Vodafone is also expanding its data services to every village with more than 5,000 residents. In fact, by October 2013, the operator had already met 70 per cent of this target.

Meanwhile, Idea Cellular had 3,142 rural service centres (Idea Points and Idea Service Points) across 3,036 rural towns as of March 31, 2014. It also often organises camps in rural areas where customers do not have easy access to its service centres. The company has set up call centres in Tier II and Tier III cities in order to reach rural customers.

Reliance Communications’ (RCOM) rural footprint spans 24,000 towns and over 600,000 villages. It formed a joint venture (JV) with Krishak Bharati Cooperative Limited (KBCL), a multistate cooperative society, to distribute its products and services. The operator has been leveraging KBCL’s network of over 25,000 cooperatives and 60 Krishi Seva Kendras to expand its rural presence.

As for BSNL, rural telephony is one of its key thrust areas and it currently has the strongest rural infrastructural reach amongst operators. BSNL provides wireless local loop services to over 400,000 villages, GSM services to more than 350,000 villages and broadband services in over 170,000 villages.

Fine-tuned VAS portfolio

Over the years, operator offerings for rural areas have undergone a strategic change, from being plain voice-based services to being high speed internet services led. Further, most of these value-added services (VAS) are being offered on the mobile platform as rural areas continue to face a huge physical infrastructure deficit. As a result, a plethora of mobile VAS (MVAS) has flooded the rural markets in the past five years. These have been designed to stimulate rural economic growth and social development, support agriculture, promote local entrepreneurship, improve the education and health ecosystems, promote trade and e-commerce, create employment opportunities and support governance.

Interactive voice response (IVR)-based services, particularly those related to agricultural information, have been popular with rural users. For instance, Handygo’s Behtar Zindagi, an IVR-based VAS, targeted at the rural population, has seen huge uptake. Operators such as Idea Cellular, Bharti Airtel and RCOM have collaborated with Handygo to extend these services to their rural user bases. Launched in 18 different regional languages, it provides information and advisory services related to agriculture, market rates, weather forecasts, livestock, finance, education, and health care for women and children. Since its launch in 2009, farmers have been using Behtar Zindagi for planning crop seeding during the monsoon season. By getting timely weather updates during periods of erratic rain, they are able to determine a window to carry out the planting process. The availability of the service in local languages is also a big plus for farmers.

In fact, agriculture being the mainstay of the rural segment,  operators’ focus has largely been on launching services that disseminate relevant, real-time and localised information to farmers. In February 2013, Bharti Airtel launched Apna Chaupal, a voice-based one-stop solution portal for VAS in rural and semi-urban regions. The portal enables customers to access services and information related to agricultural techniques, mandi rate updates, government jobs and entertainment applications in regional languages, by dialling a toll-free number. In the past, the operator has also formed a JV with Indian Farmers Fertilizer Cooperative Limited (IFFCO), called IFFCO Kisan Sanchar Limited (IKSL), to offer low-cost handsets and voice-based services for disseminating agriculture-related information. The JV functions along with the Agricultural Technology Management Agencies in different states to provide technical information related to education, government schemes, health care and bank loans. In Odisha, IKSL has teamed up with National Federation of Fishermen’s Cooperatives Limited and the state government to provide customised content to fishermen. The services include information on potential fishing zones, weather forecasts, tidal wavelengths, basic fishing hygiene, health, fishing tips and government schemes.

Meanwhile, Idea Cellular has partnered with Reuters for providing an agricultural information SMS – Reuters Market Light. Similarly, Kheti System is a mobile software package that provides real-time updates to farmers. It gathers farmers’ queries and reports back with expert opinions and advisory. The minimum requirement for availing of this feature is that the mobile phone should have GPRS and video recording facility. Tata Teleservices Limited (TTSL) has also collaborated with IMI Mobile to offer a voice-based rural information service called Cell Shakti, which allows farmers to use mobile phones to remotely monitor and operate irrigation pumps used for watering crops in remote locations.

In recent years, m-banking and mobile money services have emerged as key VAS for the rural segment. Rural India, which houses 70 per cent of the country’s population, has access to about 30 per cent of the country’s bank branches. Further, for ATM access, this figure stands at a dismal 5-8 per cent. To facilitate financial inclusion as well as explore new business opportunities, telecom operators have tied up with banks to enable rural subscribers to conduct basic financial transactions through their phones. These services include cash deposit, cash withdrawal, balance enquiry, money transfer, recharge, and utility payments.

Idea Cellular, in partnership with Axis Bank, has launched the Idea MyCash application that allows Idea customers to avail of m-banking services. Vodafone India collaborated with ICICI Bank to launch M-Pesa in 2012. Recently, it completed a pan-Indian roll-out of the service. Further, RCOM has signed an agreement with the State Bank of India to offer services such as account balance enquiries, mini statements, fund transfers, chequebook issuance, mobile recharge and bill payments through handsets. TTSL has also formed a strategic tie-up with ICICI Bank through its wholly owned subsidiary, MMP Mobi Wallet Payment Systems, for launching a money transfer service, wherein MMP acts as ICICI Bank’s business correspondent. Bharti Airtel’s Airtel Money Super Account allows customers to open a no-frills account for banking transactions.

Besides the agriculture and banking domains, VAS is also increasingly being used as a medium to empower rural users. A host of mobile-based education services, health care solutions and e-governance initiatives are now available. Services such as m-health and m-education, and job portal applications have been launched by operators like TATA DOCOMO, Aircel, Vodafone India and Uninor. Aircel and Apollo Hospitals have collaborated to offer a service called Aircel Apollo Medical Healthcare, which will help patients in rural and urban areas avail of medical services remotely. TTSL has collaborated with the Maharashtra government to launch MahaOnline, a portal that offers various online services to over 10,000 rural citizens in the state. The portal provides customers with online birth and death certificates, no-objection certificates, solvency certificates, etc.

The way forward

As operators struggle to stay profitable in the fast saturating urban markets, the rural segment will emerge as a key focus area for them in the next two years. The rural space is expected to witness significant activity as players vie for a bigger share of the market. However, as most rural consumers will be experiencing the internet for the first time on their mobile phones, an effective awareness strategy and a compelling business case for MVAS will be crucial to driving uptake in these markets.

While it remains to be seen if India will fulfil the National Telecom Policy target of achieving 70 per cent rural teledensity by 2017, the segment is sure to witness growing prominence in operator portfolios.


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