Reaching the Masses – Key challenges and enablers

Rural India is already contributing significantly to the revenues of some of the large brands, including Hero Honda (60 per cent), Hindustan Unilever Limited (45 per cent), Dabur (40 per cent). Telecom is slated to be the next big beneficiary from this growth.

The key enablers for telecom demand in the rural areas are handsets, distribution, services and pricing, operations and maintenance, connectivity and service offerings.

Distribution: Reaching the hinterland remains a major challenge for telecom operators. However, innovative business models such as the BhartiIFFCO tie-up are being developed.Models involving FMCG companies could act as a catalyst to distribution. In fact, one of the future trends will be operators tying up with FMCG companies to enhance their distribution network in rural areas. Cell site infrastructure could be another source of distribution.

Handsets: There is still room to bring down the cost of handsets from $20 to $10. Operators need to introduce customised handsets with vernacular content to facilitate handset use by the rural population. Micro financing for handsets has to be promoted so as to ensure that handset costs do not become a hurdle in mobile service uptake. Also, since power is a key issue in such areas, solar-powered handsets are likely to be a key future trend.

Service pricing: With the ARPU of rural subscribers projected at sub-Rs 100 levels, a reduction in tariffs is necessary and the total cost of ownership brought down to $2-$5. Further, taxes and duties have to be rationalised as far as the rural areas are concerned. Meanwhile, home zoning is likely to emerge as a win-win proposition in the hinterland.

Operations and maintenance: With average diesel costs being as high as Rs 19,000 per month per site across Maharashtra vis-? -vis Rs 2,000 in Mumbai, tower companies are looking at windmilland solar-based cell sites for power-deficit areas.

Connectivity: There is lack of availability of sufficient backhaul capacity.Broadband reach is possible in the rural areas through Wi-Max. Intra-circle roaming models should also be considered.

Service offerings: One of the key demand enablers for mobile phones in rural areas would be service offerings like micro banking, information services, commodity trading, health and education services, regional entertainment and location-based services.

Reaching out to the masses and that too with a commercially viable model is one of the keys to sustaining operations in the rural market. In that respect, there are several trends emerging in the rural markets. Intra-circle roaming is gaining acceptance. Two models are prevalent for intra-circle roaming: one where new operators tie up with the incumbent operator, the other where two new operators tie up in order to split both capex and opex.

Passive infrastructure sharing has also witnessed huge uptake. According to Ernst & Young analysis, passive infrastructure sharing would lead to annual opex savings of $825 million by 2012.

Since rural India is very price sensitive, the key metrics that would need to be tracked by operators are not the usual ARPUs and minutes of usage (MoUs) but the average realisation rate, the airtime rate per outgoing minute, the marginal cost per minute, the net margin per MoU, cell site utilisation, and the capitalproductivity ratio.

The rural markets present huge challenges. These areas are characterised by poor infrastructure (inadequate power availability, roads, etc.), low per capita income and illiteracy. Also, the large geographical spread requires larger investments by operators. Backhaul and transmission cannot be built over simpler implementation schemes (for example microwave) due to size.

The rural population is spread over 600,000 villages, which implies that a large distribution network is required. The traditional sales channel may not be viable as distributor investments may not be set off by revenues.