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Rural Moves: Operators turn their attention to this high-potential segment

July 13, 2015

Over the past few years, the uptake of telecom services among the country’s rural population has been exemplary. Rural telecom subscriptions have grown at a compound annual growth rate of 22 per cent between 2010 and 2015, indicating the newfound interest of operators in rural India. While a part of this interest has been due to the limited growth opportunities in urban areas (wireless teledensity has reached as high as 216.98 per cent in urban centres like Delhi) and the financial constraints of operators, the untapped potential in rural areas is another compelling factor that is leading to the exploration of the segment.

With data taking centre stage in operator strategies, the rural market is set to become a lucrative one for mobile broadband services. Rural areas suffer from a dearth of fixed line broadband infrastructure and, thus, “mobile” is likely to be the foremost platform on which users in such areas can experience data services. The increasing proliferation of affordable smartphones, and the growing localisation and availability of relevant content will be the key growth drivers for mobile broadband uptake in rural areas.

Current status

According to the Telecom Regulatory Authority of India’s performance indicator report, India had 398.68 million rural subscribers as of December 2014, accounting for 41.05 per cent of the total subscribers. Bharti Airtel led the pack with 101.25 million rural users, followed by Vodafone India (93.79 million) and Idea Cellular (83.25 million).

Rural subscribers account for close to half the total subscribers for incumbent operators. The growing share of this segment in operator portfolios is on account of the fine-tuning of various strategies that have helped bring users on board.

Initiatives to develop the rural telecom ecosystem by providing relevant and customised applications in local languages, introducing low-cost equipment and smartphones, and spreading awareness about mobile broadband and its potential are helping operators create a strong and receptive consumer base in rural areas. People are increasingly using applications to seek information on crop prices, weather forecasts, new farming methods, etc. Handygo’s Behtar Zindagi, an IVR-based value-added service (VAS) that is targeted at the rural population, has seen massive uptake. Operators like Idea Cellular, Bharti Airtel and Reliance Communications (RCOM) have collaborated with Handygo to extend this service to their rural user bases. It provides information and advisories on 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 can determine a window for carrying out the planting process. The availability of the service in local languages is also a big advantage.

Recently, Vodafone India launched an initiative called Kisan Mitra to enhance the productivity of India’s farmers. A similar programme, Airtel Kisan Mitra, was launched by Bharti Airtel in 2010. This project reiterated the benefits offered by IFFCO Kisan Sanchar Limited, a joint venture (JV) between Bharti Airtel and Indian Farmers Fertilisers Cooperative Limited (IFFCO).

Over the years, operators have also begun sharing their tower infrastructure in rural areas with the aim of providing better coverage in a cost-effective manner. They have collaborated to address high investment costs and overcome infrastructural challenges in these areas. In addition, they have introduced attractive and affordable tariff schemes like lifetime prepaid cards, micro prepaid cards and low-cost handsets to improve mobile penetration.

Operators have also made significant efforts to strengthen their sales and distribution channels for the better provisioning of services in rural areas. Bharti Airtel has developed a multilayered distribution network and employed small retailers in rural pockets to ensure the easy availability of recharge coupons. Similarly, Vodafone India has launched Associated Distributor Vodafone Mini Stores to strengthen its foothold in the rural market. These are touch points managed by local residents, often members of the village panchayat. Idea Cellular, meanwhile, has several rural service centres and also organises camps in rural areas where customers do not have easy access to the service centres. The operator has set up call centres in Tier II and Tier III cities to reach rural customers. RCOM has formed a JV with Krishak Bharati Cooperative Limited (KBCL), a multistate cooperative society, for distributing its products and services. The operator has been leveraging KBCL’s network of over 25,000 cooperatives and 60 Krishi Seva Kendras.

Operators are constantly working on newer and more innovative business models to increase their distribution reach and control sales and servicing costs. An in-depth understanding of the service needs of rural customers is crucial for devising new strategies. To this end, it is important to realise that the rural market is very different from the urban market, with the former facing several challenges like the lack of basic infrastructure for education, health care, banking, etc.

Telecom service providers have often found that adding new capacity or upgrading existing capacity is extremely difficult in rural areas, given the high roll-out costs and low returns on investment. An erratic power supply and poor grid connectivity are the other key impediments. In addition, telecom equipment needs to be backed up by generators, which entail high operating costs. Installing fibre optic cables in rural areas is also highly capital intensive, and the lack of fibre network affects backhaul and last mile connectivity. Even on the opex front, operations and maintenance costs are very high in rural areas due to the need for equipment security and 24x7 energy access. Other challenges relate to the unavailability of trained manpower, and battery maintenance and replacement, particularly because of frequent deep discharges.

The rural telecom market continues to be dominated by voice, with data uptake in these regions starting to pick up only recently. Voice ARPUs are typically lower than data ARPUs, which affects an operator’s business case. The situation, however, is improving now as rural users are demanding higher bandwidths and using high speed services.

Untapped potential

Rural India offers tremendous opportunities for growth, and operators are increasingly looking to tap this market now that the urban market has saturated. A key factor that is set to play a major role in bringing more people online in India is the awareness of data services. The vast majority of the rural population continues to be unaware of the data revolution, even though data penetration in the rest of the country has been surging. While the absence of a robust internet infrastructure is one of the reasons for the poor rural response, the lack of awareness about the benefits of the internet is a major issue. Industry estimates suggest that 70 per cent of non-data users at present are unaware of the benefits offered by the internet. Internet education and literacy thus become crucial for making users aware of the opportunities and benefits offered by m-health, m-education, m-banking and other mobile and broadband-based services. M-banking and mobile money services have emerged as key VAS offerings for the rural segment. Rural India, which accounts for 70 per cent of the country’s population, has access to about 30 per cent of the country’s bank branches. 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 been collaborating with banks to enable rural subscribers to conduct basic financial transactions through their phones. These services include cash deposits, cash withdrawals, balance enquiries, money transfers, recharges, and utility payments.

Mobile banking will ensure greater financial inclusion and also facilitate the delivery of other mobile-enabled VAS like health care, e-governance and education. Tele-education will help rural citizens reap the benefits of education without their day-to-day work being affected or forcing them to migrate to other regions. 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 like the payment of bills and tax dues, for instance, have begun to gain traction in rural areas. The telemedicine market has also grown tremendously in recent years. Operators must partner with various stakeholders in the mobile VAS value chain to explore new opportunities in these areas.

The way forward

The rural segment is emerging as a strong focus area for all stakeholders in the Indian telecom industry. The government has been pushing large-scale programmes like the National Optical Fibre Network project and the Digital India programme to ensure broadband connectivity for all. Operators are also making significant inroads into rural areas as the segment is poised to drive future business growth and profitability. With the deployment of the right strategies, the urban-rural digital divide is set to narrow progressively.


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