Operator Strategies – Experience in rural markets

However, due to the low teledensity, the rural areas have become a key growth area for telecom operators. Today, about 60 per cent of the growth in telecom comes from the rural regions. Of the total 440 million mobile subscribers, 108 million are from the rural areas. In 2008 alone, around 30 million rural connections were added.

Broadband services are equally important for the rural areas. While there are currently 6.8 million broadband connections, broadband teledensity stands at just 0.6 per cent. The rural areas account for only 325,000 broadband connections.There are several reasons for this, the more prominent being the low income of rural populations and low PC penetration. The average income in the country is Rs 28,000 per annum while in the rural areas it is even less than Rs 16,000 per annum. According to a study undertaken by a research firm for Bharat Sanchar Nigam Limited (BSNL), the expenditure on telecom is 5 to 7 per cent of the total income, which implies that a rural household can spend Rs 100 to Rs 150 a month on telecom. Operators, therefore, have to provide a landline or mobile connection or a combination of both within this limit and that too, bundled with other services. The study also revealed that a rural customer would not spend more that $100 on a PC.

While these are some limitations from a customer’s point of view, taking broadband to most of these regions has its own set of limitations. The challenges include difficult terrain, lack of education, low income and lack of power supply.

In some states, the average availability of electricity is only three to four hours per day. BSNL has 38,000 rural exchanges across the country. In Bihar, BSNL has 823 telephone exchanges operating on energy alternatives for the past seven to eight years. Inadequate road infrastructure is also a key issue. In hilly terrain, for example in Himachal Pradesh, the cost of transporting equipment is almost the same as the cost of the equipment itself. The lack of adequate manpower is also an issue in these regions.

With help from the Universal Service Obligation (USO) Fund, BSNL has installed more than 22,500 DSLAMS in rural areas, covering 150,000 villages. The company will also offer Wi-Max services.About 1,000 base transceiver stations (BTSs) covering 1,000 rural blocks are likely to be installed by the year-end. And another 7,000 BTSs are likely to be installed by June next year. By then, BSNL will cover 350,000 villages in the country.

Agriculture and financial services are the two thrust areas for mobile telephony in rural areas. However, agriculture-based Indian society is characterised by low incomes and large families. The size of the farmer segment in rural India is about 258 million, that is, 34 per cent of the total population.Household composition comprises five members on an average, with the number of earning members typically at about 1.5.Most farmers have an average annual income of less than Rs 24,000. Since illiteracy levels are high in this society, farmer productivity is constrained by insufficient advice on agricultural issues and lack of market access. In terms of financial services as well, rural consumers have limited access to loans and deposits compared to their urban counterparts. As a result, mobiles are seen as key sources to enhance access to the outside world and improve livelihoods for rural people.

Tata Teleservices Limited (TTSL) has introduced a package called Sahayak, which provides four key services (mandi prices, weather forecasts, future prices and personalised advisory services). Empowering the farmer to connect directly with the seller through the mobile platform, bypassing middlemen, enables the farmer to earn 20- 25 per cent additional revenue.

The company has also recently commercially launched a “fisher friend” application in Tamil Nadu and Puducherry, and is currently conducting a pilot project in which mobile phones are used to remotely control the start-up of irrigation pumps. However, as far as financial services are concerned, there is a long way to go in providing banking and remittance facilities to rural India.

The rural approach clearly requires a partnership model. For instance, TTSL has tied up with Tata Kisan Sansaar. Through this, a rural consumer “Due to the low teledensity, the rural areas have become a key growth area for telecom operators.” can avail of various services like “attend a crop” seminars, organise a small farmers’ meeting at the village level, watch a crop demonstration, etc.

TTSL is also working with micro finance institutions that have deep reach in southern India. The reach of a micro finance institution can be leveraged and the mobile phone can be bundled along with the loan, thereby lowering the entry barrier. In such a scheme, the subscriber can pay instalments as low as Rs 50 per week for the handset.

Rural telecom penetration is a huge challenge that can be met through forging a series of partnerships and innovative tie-ups.

Several trends have been observed in the rural areas. While 50- 60 per cent of the subscriber additions are from rural India, it is interesting to note how many of these are actually first-time users. As in the urban areas, there is a concept of multiple SIM cards in the rural areas as well. People use multiple SIMs, one for SMSs, another for night calling, and so on.

Another trend being observed is that whenever a network comes up in a village or a small town, at least one mobile phone is acquired in every household in a short span of time. Even the poorest farmer buys a phone.

The rural regions are characterised by low ARPUs. Hence, the return on investments is not very high. Rural consumers are price conscious and there is no immediate return. This is because while subscribers exist, there is not much usage.Consumers use their phones more for incoming calls and less for outgoing.With regard to value-added services (VAS), Reliance Communications’ (RCOM) experience is positive as quite a large number of subscribers are using its services. However, if one looks at a breakup of rural telephony usage, VAS largely pertains to SMS or ringtones.

Also, given the area to be covered and the costs involved, an operator cannot go to a rural market alone. It has to tie up with various other business groups to reach these areas. In this respect, Idea Cellular has partnered with Nokia for its rural activities. For instance, the company has visited small villages and provided handsets bundled with SIM cards. This saves the user a lot of effort in going to a town to buy a handset.

Partnering with Nokia, the company has also launched Nokia Life Tools, a push-based SMS service that provides information with respect to market rates, education and general information like fertiliser rates. This is not a pull-based but a push-based SMS application.

Another strategy being adopted by the company is with regard to branding. Since in most rural areas, people do not know English at all, the branding has to be done in a local language in order to identify with the customer.

The company is also in the process of tying up with IL&FS, which is opening up customer service centres in backward regions. Through these IL&FS centres, users in rural areas can get SIM cards, mobile recharges and other services like railway bookings etc.

It is difficult to make a rural customer understand the needs and “whats-in-it-forme” of the services offered by an operator.They need to be informed that while mobile is a tool that can be used to talk, there are hundreds of other services that can be availed of as well.

However, in doing so, there are several bottlenecks that need to be removed.Illiteracy and a lack of awareness amongst rural consumers are key issues that need to be addressed. The gap between distribution and the addressable population is another major hurdle. In order to generate profitable growth in rural areas, it is important to bridge this gap. However, this will require time, infrastructure and investment.

As part of its rural initiative, RCOM has tied up with Krishak Bharti Cooperative Limited for offering VAS to mobile users in villages. The company has also tied up with several non-governmental organisations and has adopted strategies like enrolling the sarpanch as the retailer.It has also developed an interactive platform that provides relevant information to the rural consumer.