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Mobile Subscribers Yearwise comparision

Promising Growth - Status of rural telephony

June 15, 2009

Over the past few years, rural teledenity has shot up sharply, from a dismal 2 per cent in 2006 to about 14 per cent in April 2009. Much of this increase has been in the wireless space and can be attributed to sustained efforts by both the government and private operators. While government initiatives like subsidies from the Universal Service Obligation Fund have played a key role in increasing rural telephony, operators, recognising the potential offered by the large rural population, have also been aggressively rolling out networks in these areas.

The low-margin rural areas account for the bulk of the over 10 million wireless subscribers being added every month.Based on the Telecom Regulatory Authority of India figures, the four metros together added 10.3 million subscribers in the first nine months of 2008, while the rural areas added 11.3 million. Growth in the Category B and C circles is driving the growth in subscriber additions.

The rural wireless subscriber base, at 93.15 million as of December 2008, witnessed a growth of 31.5 per cent during the year and accounted for 23-25 per cent of the total wireless subscriber base.Meanwhile, the rural fixed line subscriber base, at 10.68 million, marked a decline of 1.11 million during the period December 2007 to December 2008.

But while the rural wireless subscriber base has been steadily increasing, the broadband segment has made very little progress. Broadband connectivity in the rural areas continues to be negligible. This is, however, set to change with the launch of 3G and Wi-Max services in the country.


With penetration levels in cities as high as over 100 per cent (in Delhi), the rural areas are clearly driving the next level of wireless growth. This trend is expected to not only continue but also strengthen in the future as rural subscribers start accounting for a higher proportion of the total subscriber base. According to a Confederation of Indian Industry and Ernst & Young study report, rural subscribers will account for around 100 million (40 per cent) of the next 250 million Indian wireless users, and for over 60 per cent of the total telecom subscriber base by 2012.

Clearly, the rural areas present a huge opportunity not only for service providers but also for other stakeholders in the telecom ecosystem, including vendors and tower companies. For instance, the tower industry in India has emerged primarily in response to the operators' demand for towers in remote regions. As telecom operators, deterred previously by the huge capex required to roll out networks in these regions, increasingly opt for sharing passive infrastructure to reduce costs, independent tower companies like XCEL Telecom and Tower Vision have come up and multinational firms like American Tower Company have set up shop in India.Capitalising on the strong demand for towers, these companies are targeting sites in rural areas which have so far been unexplored by telecom operators but are now a key focus area for them.

Similarly, the next wave of telecom infrastructure growth is likely to come from the rural areas. Network rollout in rural regions accounted for 70 per cent of the capital expenditure earmarked for 2008 by the country's largest private operator, Bharti Airtel. Other existing operators and new licensees have planned similar expenditure outlays for the rural areas. This presents a huge opportunity for vendors struggling in a global market that is showing few signs of growth.Industry stalwarts such as Ericsson, Nokia Siemens Networks and Alcatel-Lucent are therefore positioning themselves to benefit from this wave of investment.

The launch of 3G and Wi-Max services will also play a key role in increasing rural telephony. While globally 3G is viewed as a service primarily for the urban areas, in India, 3G will become the predominant platform to achieve the government's broadband objectives as well as to undertake key social initiatives such as e-education and telemedicine. Wi-Max offers a robust and scalable last mile solution for these areas and is expected to make an invaluable contribution. The technology can be deployed rapidly in remote locationsand will be able to support the minimum capacity and speed requirements that will be laid down by the government in its National eGovernance Plan initiatives.


However, even as the government and operators pull out all the stops to bridge the digital divide, there are several bottlenecks that are hindering growth in these areas. For instance, the rural subscriber base primarily comprises customers with low disposable incomes. This will further increase the downward pressure on ARPUs and lead to an overall reduced return on investment. Operators are now redefining their business models to reduce operational costs and promote savings in capital expenditure, as providing low-cost network coverage in these regions is the only way forward.

Another issue is that the base transceiver stations (BTSs) are underutilised as the rural population is sparse and scattered, thereby increasing costs. Maximising the coverage per site is important in order to minimise the number of sites required.

The terrain in these regions also makes it difficult to roll out networks. Only about 50 per cent of the 600,000 villages in the country are accessible by road. Sometimes there is no road on which a BTS or tower can be installed. Inaccessibility of remote villages is thus a major obstacle in setting up infrastructure sites.

Post-deployment maintenance and running of the network after rollout are also key issues as placing resources at every site is an expensive proposition. In this case, remote management of the network becomes important.

There is a lack of adequate back-haul capacity between the district headquarters and block headquarters in the rural areas. In some cases, the optic fibre network reaches only up to the district headquarters.

The lag in the accrual and disbursement from the USO Fund for setting up technologically advanced schemes, including IP-based networks and very small aperture terminals, also poses a problem.

With energy costs accounting for 35 per cent of the site opex, lack of power is a key issue that operators have to contend with as they increase their penetration in these regions. With a large proportion of villages in the country having no electricity, infrastructure service providers and telecom operators are currently using oilbased DG sets to run their services, resulting in an increase in opex. Operators and vendors are now considering alternative energy sources such as wind power, solar energy and biofuel. In 2007, Ericsson, for instance, implemented biofuel as an alternative energy resource for Idea Cellular. Tata Teleservices has also undertaken several initiatives in this area, including the use of free cooling units and dividing the shelter into various zones to reduce airconditioning costs.

Globally, wireless network solutions are adopting green initiatives for energy conservation and resource optimisation. Green BTS solutions reduce the need for resources like equipment rooms and siterelated auxiliary equipment. Environment-friendly products typically feature low power consumption, lower noise, electromagnetic radiation and environmental impact. This reduces the total cost of ownership while saving energy.

Net net, while rural teledensity is climbing up, there is still a long way to go. The digital divide between the urban and rural areas still remains, with urban teledensity at over 85 per cent and rural at just 14 per cent. Clearly, for both the operators and the government, providing connectivity to these regions will be nothing short of a Herculean task.


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