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Global Initiatives - Increasing telecom access for rural communities

June 15, 2009

In most countries of the world, rural communities still constitute an untapped communications market but have, in fact, been given short shrift in the implementation of telecom reforms. Until recently, telecommunications in these regions, particularly in developing countries, has been driven primarily by government policy and initiatives and been limited to fixed lines.

However, urban markets are fast stagnating with telecom penetration levels in developed and developing countries standing at over 80 per cent and 50-85 per cent respectively. This has resulted in relatively fewer opportunities for mobile expansion in these regions.

Deregulation, the universal access fund movement and the mobile explosion have brought together new concepts that have changed the business environment. Rural mobile connectivity that has been recognised by operators and manufacturers alike as a significant business and development opportunity is now a key focus area for both technology vendors and service providers.

While earlier, telecom operators were deterred by the high cost of networks, several initiatives have now made the prospect of telephone communication in rural communities affordable and a real possibility.

Moreover, revenue opportunities are only going to increase as more people purchase mobile phones. Operators are also looking to roll out 3G services in developing countries like India. Network infrastructure is continually being built and upgraded, which, in turn, will lead to increased subscription levels as well as higher revenues.

The credit crunch notwithstanding, emerging telecom markets like India, China and Africa continue to be attractive investment destinations for global telecom players, driven primarily by the growth potential offered by the rural areas in these regions.

Rural regions in mature markets

Even in developed markets like the US, broadband penetration in rural areas is lagging behind that in urban areas. Largescale government intervention is required to ensure universal broadband access, as the cost of network buildout in these regions is rather high.

There have been large differences in how deeply broadband connections have penetrated into rural communities on a regional basis in the US. The west leads in broadband connections, and the south lags far behind.

Much of the increase in rural broadband penetration (currently at a little over 30 per cent) over the past few years has been driven by government programmes.

There are numerous government programmes run by several cabinet-level agencies that are aimed at funding telecommunications infrastructure and applications in high-cost areas.

For instance, the $6.8 billion Federal Universal Service Fund (FUSF) –­ the US's counterpart of India's Universal Service Obligation Fund –­ is amassed from a federal surcharge on all wireline, wireless and internet phone lines.

On the operator front, while communications conglomerates like AT&T and Verizon are not likely to provide rural access lines in the future, there are several other carriers focusing on these regions. These include companies like CenturyTel, Embarq, Windstream, FairPoint and Frontier. In October 2008, Embarq, a Sprint spin-off, was acquired by CenturyTel, Inc. in an $11.6 billion deal. The buyout will knit together two phone companies with a local/regional focus catering chiefly to customers in less populated parts of the US.

In the UK, telecom operator 3 won a contract from the government in Ireland at the beginning of this year to provide broadband services to underserved regions and ensure universal broadband coverage by September 2010, at an envisaged investment of Euro 223 million.

Similarly, NYnet, a public-private partnership based in Yorkshire, intends to overcome the challenge posed by rural and coastal areas in the area of broadband connectivity. NYnet has established a new, high quality telecommunications network and will assist in providing affordable, high speed, next-generation internet access. The project represents Europe's largest public sector-led broadband infrastructure initiative.

Rural initiatives in developing markets

In the developing world, meanwhile, operators are now turning their attention to the rural regions. In Africa, the figures for internet access and use are well below 5 per cent for most of the continent. Over 60 per cent of Africa's population lives in unconnected rural areas and represents an untapped market, holding enormous potential for growth for service providers, equipment manufacturers and the entiretelecom industry.

Eastern and southern African countries have started telecommunications projects aimed at connecting rural areas with cities and increasing countrywide connections to international networks. The projects are designed to accelerate the growth of information and communications technology (ICT) and provide ehealth, e-learning and e-commerce in rural areas.

For instance, in Zambia, the government is building multi-purpose telecentres in four southern provinces of the country and will later expand its efforts to other regions. A similar project in Kenya will connect nine provinces in the country.

Meanwhile, in Nigeria, which is essentially a rural country, telecom operator Zain has introduced a rural telephone micro-franchise programme called Rural Acquisition Initiative that is aimed at empowering rural people to communicate and create wealth and employment.

The initiative, targeted at low-income consumers in the poorest parts of Nigeria, centres on an innovative micro-franchising plan for base station management. The telecom franchise plans involves rural residents in base station management and distribution programmes. In the process, it creates jobs, wealth and improved products and service availability.

In Bangladesh too, the infrastructure of micro finance institutions (MFIs) has helped in increasing rural connectivity. Village pay phones is an initiative of the Grameen Bank that is aimed at reducing poverty through the economic empowerment of women in rural Bangladesh. The Grameen Group manages the entire phone system, operates the GSM network and lends money to village women to purchase GSM cellular phones. Phone owners rent the phones out to village farmers and other community members for a fee and provide messaging and incoming call services.

The Grameen Phone experience has helped in increasing the use of a share access model and has led to the creation of direct employment for the local population, particularly women. Currently, phones have been placed in over 1,100 villages. The initiative is targeting 500,000 subscribers, including 68,000 phones dedicated to serving rural areas in six to seven years.

Similar moves on tying up the rural telecom initiative with some existing cooperatives or MFIs/ NGOs are likely to enable sustainable success of the launch of these services.

In Malaysia, a system called TaniNet has been designed to benefit the rural community. An interactive online agricultural and biotechnological website, TaniNet provides the agricultural community with information on advances in planting materials and practices. This website focuses on enabling the rural farming community to use ICT to access and share information and use online services. Through collaborative efforts in the form of a partnership among the private sector, the government and community organisations, TaniNet has effectively used ICT to benefit the rural community. Among its achievements, it has introduced online services and e-commerce for the rural farming community and is set to become a specialised agricultural portal for the agricultural community within Malaysia and the Asia-Pacific region.

Mobile phones are also increasingly being used to make financial transactions to provide the unbanked and underbanked with an affordable alternative to mainstream bank offerings that have no monthly fees or minimum balance requirements.

For instance, Globe Telecom in the Philippines has rolled out the G-Cash service that allows subscribers to transfer funds both domestically and internationally, and make payments through text messages. Authorised G-Cash outlets let users load or withdraw cash by issuing instructions through their phones and receive international remittances. Similarly, SMART Communications has enabled electronic sales of small increments of prepaid airtime via SMS, creating a business opportunity for 450,000 entrepreneurs. In partnership with Mastercard, the company has also launched Smart Money, a service that enables users to transfer money from a bank account to a Smart Money account. Subscribers can then use their Smart Money card like a debit card, or transfer money via SMS to another user's card.

Targeting the estimated $18 billion that is sent annually from the US to Latin American countries by immigrants and migrant workers, Motorola recently unveiled M-Wallet, a downloadable software application that allows users to pay bills, purchase products or transfer money using their mobile phones.

Mobile applications are also improving the delivery and scope of micro finance services. In Uganda, Hewlett-Packard has partnered with three MFIs to pilot a mobile transaction platform that lowers transaction costs and reduces fraud. The remote transaction system enables financial data to be captured by a hand-held device in the field and uploaded to the MFI over a cellular network.

In Kenya, Vodafone has created a mobile-enabled version of an existing micro finance system. M-Pesa creates a direct link between the MFI and its client making financial transactions faster, cheaper and more secure. The platform also lets the user withdraw and deposit cash (through local agents) and enables person-to-person transactions, opening the way for a largely untapped market for remittances. As a result, the MFI functions more as a full-service bank rather than just a loan-giver.

Clearly, the provision of telecom services in rural areas is enhancing rural productivity. For instance, timely access to market information via communications networks is helping farmers make astute decisions about what crops to plant and where to sell their produce and buy inputs from. However, rural communications initiatives need to be properly conceived and implemented so that they can have an impact that extends beyond individual communities.


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