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Bridging the Gap - Steps to accelerate rural telecom rollout

June 15, 2009

Despite rural teledensity having risen considerably over the past few years through the efforts of the government and private companies, the urban-rural divide continues to widen. tele.net asks sector experts for their views on what other initiatives need to be taken to step up rural telephony, and the key issues and challenges involved...

What strategies and initiatives can the government and operators take to increase rural telecom penetration?

Vijoy Kumar
Rural telephony needs more investment.Given the relatively low ARPUs, operators are looking for alternative ways to provide rural connectivity at reduced capex and opex so that it can be a viable business.There are two ways to do this. The first is to incentivise operators through the Universal Service Obligation (USO) Fund.The government is taking several measures to do this and the Telecom Regulatory Authority of India (TRAI) has also come out with recommendations on rural telephony. The second alternative is operators using different technologies and solutions to set up telecom infrastructure at low cost.To make the business viable, it is imperative that applications suitable to these regions are developed. The applications for rural areas are different from those in urban areas where applications like cricket clips, mobile music and news alerts have witnessed growth. In the rural regions, the appropriate applications would be education, telemedicine, etc. We are looking to tie up with content providers who can develop these applications.

T.V. Ramachandran
The rural-urban divide is widening as the rate of growth of urban teledensity is far more than that of rural teledensity. There is absolutely no room for any complacency. We have a big challenge ahead of us to try and correct this trend.

Several steps have already been taken.TRAI has recently released its recommendations on rural telephony, which are being examined by a Department of Telecommunications (DoT) committee. Increasing rural penetration is something that is engaging the attention of policy-makers, the regulator and various industry bodies.

Here, a few things have to be considered. The USO Fund's concept of providing financial assistance from the central corpus has not been a great success as a huge sum of money –­ I think currently about Rs 250 billion –­ is lying unutilised.The earlier experiments of bidding for towers have not always been successful. The operators initially made aggressive bids, but neither have the towers been rolled out nor has the money been used. So, the rural population has not benefited. The objective is to connect the unconnected people as fast as possible. The auction, that was designed to invite aggressive bids, was not suited to the purpose. While a transparent bidding process is needed, the bidding should be done for timelines instead of for money.The subsidy should be disbursed to the operator who is able to roll out the network most quickly. The operator should be given incentives if the network is rolled out faster than the time allocated. Similarly, penalties should be imposed for time overruns.

To cater to the rural market, operators need to launch innovative products, be it voice telephony or value-added services. Once the basic business viability is established, competition will take over and lead to more innovation. Content suited to the rural regions must be developed as the scope is endless.

S.P . Shukla
Infrastructure sharing by operators in rural areas will make it viable to set up telecom infrastructure. The government should facilitate this through support from the USO Fund. The government can also help in a big way by facilitating right of way (RoW) approvals and electricity connections in these areas. Due to the shortage of power supply in these areas, towers have to run on generator sets, sometimes for 20 hours a day. As a result of this, the wear and tear of gensets increases and the cost of operation goes up. Another initiative that operators can take is to set up after-sales services in these areas so that customers can easily access telecom services.

Mahesh Uppal
The main issue in providing rural connectivity is the relatively higher cost of servicing these areas, which are difficult to reach and have sparse population. There are two ways in which operators can mitigate the high cost of setting up networks in these areas. First, they can increase revenue and secondly, they can reduce their costs. While getting more revenue is related to mobile termination and other interconnection charges, spending less is related to reducing technology and other costs and subsidies from the USO Fund.

The government should provide the operators with some kind of cushion for their revenues by increasing the surplus from rural phones. Unfortunately, the mobile termination charge has been reduced to Re 0.20 from Re 0.30 earlier.This means that the operators providing rural connectivity are paid less when other operators connect to their networks, thereby reducing their surplus when the need of the hour is clearly to increase the operators' surplus as they penetrate the rural areas.

At the cost end, the high expenditure on setting up rural networks can be mitigated by subsidies from the USO Fund. But the latter has not been very creative in this area. The vast majority of funds is not getting utilised to address the sector's needs, but is primarily being held in a consolidated fund to meet the government's fiscal deficit.

To make rural telecom cost effective, work needs to be done at various ends such as applications and content. Mobile phones have a smaller role to play in the rural regions vis-à-vis the urban areas. In these regions, applications of a different kind are required which primarily are broadband enabled. The means of entertainment are limited in these regions, and hence, application providers, content developers and other entities in the rural telecom value chain which provide relevant applications for the rural consumer should be brought under the ambit of the Fund. The latter has to work hard towards removing the direct or indirect barriers to the growth of broadband in these regions.

Additionally, unlike urban markets, rural markets will need serious development. The population will have to be educated about the applications and services that can be facilitated through the mobile.All of these areas should be included in the scope of the USO Fund. Finally, the government should also work towards removing regulatory hurdles. For instance, 3G is yet to be launched in the country.

What alternative power solutions can be used in the rural areas?

Vijoy Kumar
One of the major hurdles impeding the growth of rural telephony is the lack of power. Operators are looking at alternative power solutions for these regions. For instance, we are currently experimenting with solutions where the base transceiver station (BTS) will work on solar power. If this is successful, we will use it to penetrate rural regions.

T.V. Ramachandran
Erratic power supply is a huge challenge in setting up rural telecom networks. As grid power is not available in these areas, operators need to set up generator sets as well as back-up for the generators. In some areas, diesel has to be carried to the sites on camel backs. As a result, energy costs can be more than 50 per cent of the operating expenditure. Hence, even if subsidy is provided for setting up the tower, the opex needs to be considered as well. The government should consider subsidising the power cost, otherwise the business case for going into these regions will be unviable. The power cost could be subsidised for three to five years till the services pick up and the business becomes viable.

The government should also consider incentivising non-conventional sources of energy like solar panels and wind power.The capex for solar panels is quite high, and the government could fund either the entire capex or half of it. In this manner, the government can achieve the multiple objectives of environment conservation and power supply.

The alternative sources of power include biofuels, solar panels and wind power. One operator has done a pilot project using biofuel. Another has placed a solar charger on the tower itself to enable charging of phones. However, as these sources of power are not viable and ready, the operators have not adopted the systems. If the USO Fund subsidises these systems, over a period of time, economies of scale will emerge and these power sources will witness higher uptake. There is clearly a need to be innovative.

S.P . Shukla
Power has been the biggest issue.Currently, electricity from either the state electricity boards or diesel gensets is used.Other than diesel, solar power is an alternative in large parts of India, which are relatively hot throughout the year. So, solar can be the second best option. Pilots have been conducted by operators in conjunction with various vendors. But we have yet to arrive at a viable techno-commercial solution.

Mahesh Uppal
The lack of power is a major barrier in these regions. In some areas, even charging a handset is not possible due to the erratic power supply. Stakeholders in the rural telecom value chain need to work on finding a solution to the lack of power or erratic power supply in these regions. R&D onalternative power and rural power solutions should also be made a part of the USO Fund mandate and pursued aggressively.

What are the other key issues and challenges that need to be addressed to step up rural telephony?

Vijoy Kumar
Erratic power supply, backhaul, difficult terrain and hence low coverage and low ARPUs are the key issues in the rural regions. To address these, more VSAT and satellite-based technologies should be used in hilly terrain. As far as backhaul is concerned, it is not a big issue for Bharat Sanchar Nigam Limited as we have ensured that we have an extensive fixed line infrastructure, including in the rural areas. We have already set up a large number of fixed lines and are going to continue to do so.

T.V. Ramachandran
High duties and levies, which are amongst the highest in the world, are a major challenge. At the same time, telecom tariffs are the lowest. This is an anomaly that needs to be addressed. Second, there are issues regarding RoW as different states have different stands on this issue. The union government should bring out a uniform policy which states must adhere to. State governments must understand that increasing teledensity will empower the people and lead to a rise in the states' domestic product.

S.P . Shukla
If power, fibre and RoW are in place, all that needs to be developed is a business model that will be viable and profitable despite very thin teledensity in rural areas.Fortunately, RCOM has acquired a lot of experience in managing rural telephony having started operations in eastern India in states like West Bengal, Orissa, Assam and the Northeast earlier. So, we are putting that experience to good use for our national GSM rollout.

Mahesh Uppal
Relying on voice alone to make rural services profitable is going to be a challenge. Operators need to ensure that they are able to add more value to the services they provide by introducing applications for the consumer. Moreover, affordability in these regions is an issue as rural consumers typically have low disposable incomes. Operators will have to address the low ARPU issue by providing more services such as online booking and online admissions. The rural consumer is likely to pay more for these services since they would save time and money. The lack of the availability of basic infrastructure in villages is also a key challenge. For instance, during the monsoon, even existing road connectivity is unusable in many parts of India.

3G is essentially a service for the urban areas and is more expensive. How is this technology likely to expedite rural telephony?

Vijoy Kumar
It is true that 3G is a service for the urban areas and is likely to be more expensive visà-vis 2G. For instance, if we construct a six-lane road, its requirement would be greater in the urban areas as the traffic is more. Similarly, 3G provides larger bandwidth, which is required for huge data transfers. Its proliferation will happen first in urban areas and slowly the service will penetrate the rural and remote regions as 3G applications are yet to be developed.
Another key barrier is the high cost of handsets. We are actively working on some solutions so that handsets are available at affordable costs to the rural consumer. For instance, the payment could be spread over a longer period of time.

T.V. Ramachandran
I belong to the group of people who believe that 3G has a different meaning for India.This is because broadband penetration is abysmally low and wireline broadband will not happen. The only way to increase broadband penetration is through wireless technology. 3G, which is mobile broadband, and high speed downlink packet access (HSDPA) will help extend broadband services in rural regions. The pricing is also likely to be more aggressive. 3G, when it comes, will clearly have a big role to play in the country.

S.P . Shukla
3G is only a technology. It is the applications on the technology which will have different prices. In 3G too, the bulk of the capacity will be used for voice. So, if 3G is used for voice, the pricing will be no different from 2G. The same holds true for standard 2G applications like text messages. Applications on 3G are high speed applications, so they will be priced higher.

3G uptake in rural areas will be based on the internet connectivity offered. It can be used by journalists as a substitute to satellite phones and can also be used for telemedicine, tele-education, etc.

Mahesh Uppal
Initially, both in the urban and rural areas, 3G will be used for voice. But the consumers are not likely to pay more for just voice. Hence, 3G voice will have to compete with 2G. After operators invest in establishing 3G or 2G networks, the incremental cost of providing these services is virtually zero. Therefore, this market will have to be developed with different business models or lower prices. For instance, mobile advertising can be a key revenue generator for operators.

Once the data markets are developed, the opportunity is going to be huge as most rural applications would require bandwidth that would be available. I think that operators in India have shown that they can run a profitable business with low ARPUs. So I am sure that they will be able to build interesting business models around 3G and take this technology to the rural areas.


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