This article appeared in the October 3rd, 2005 edition of The Financial Express in India. Click the thumbnail to view the original article.
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Ringing in rural India
Time now seems ripe for some hot action, as villages get ready to plug into the telecom boom.
by Indranil Chakraborty
Country cousins are finally getting their share of the limelight. With telecom regulator rewriting the rules of connecting rural India, action in obviously heating up. Telecom reguIatory authority of India (Trai) and the government are currently reworking the policy to convert obligation into "opportunity." Service providers are also scrambling for newer technologies to network the villages.
Only the other day, the Indian rural landscape seemed to be an enigma for telecom service providers. While no operator denies the huge opportunity waiting in the villages, no one seems to have tasted success either. Consider this: Teledensity is no more than 2 in rural areas compared to 52 in Mumbai and 42 in Delhi. Even a monthly rental of as low as Rs 50 for fixedline phones is not proving to be lucrative enough to excite rural customers.
ln sharp contrast, FMCG majors like Hindustan Lever and ITC seem to be excited about their rural expansion. Telcos, however, continue to look primarily at urban and semi-urban areas for their growth. "If there is a rural market for the bicycle, radio, television and two wheeler, why can't there be one for the telephone?" asks Trai chairman Pradeep Raijal.
Insiders are also apprehensive about the feasibility of the much-talked about target of 250 million phones by 2007 if the telecom operators do not address the needs of the rural market. No wonder, attention is directed toward Trai as it is busy formulating a policy for the rural areas. Various reports suggest that Trill will have three basic policy directions - Use of the Universal Service Obligation (USO) funds to support network expansion of the mobile operators in rural towns and villages; sharing of network infrastructure and; right cost benefit ratio to boost teledensity in the rural areas.
Pricing is important to spread telecom business in rural areas, says Alok Shende, director technology, Frost & Sullivan. His prescription for the Indian rural telephony - Increased liberalisation, thereby allowing new service providers in the rural sector; make BSNL accountable for the ADC fund and; government ought to decrease the levies and taxes in the telecom sector.
The USO fund was created to take telecom to a market where few service providers would normally want to go. The reason is obvious - the market is unattractive for investment.
However, Navaid Khan, head rural marketing and distribution, Bharti Televentures, disagrees. "With proper segmentation of market and right kind of network expansion andpricing policy, Indian rural market is an attractive proposition for the service providers," he says.
It is the combination of wireless technology, spread of network along with government incentives like effectively using the USO fund and lowering of levies and taxes, that would make telephone affordable to the rural masses, Mr. Khan says.
"We have to do away with the the concept of obligation to expand rural networks. The USO fund should be viewed as Universal Service Opportunity Fund to make the rural and inaccessible market attractive for the service providers," says Mr. Baijal.
Already sensing the growth in the urban areas plateauing, the private operators are rolling out wireless networks in rural areas. In the next six months, the mobile operators will be present in 4,900 towns out of the country's 5,200 towns and a large percentage of them will be small rural towns.
As private mobile operators are ready to invest money in setting up base stations in the rural areas, Cellular operators association of India (Coal) director general TV Ramachandran, is of the opinion that the government should change some of the existing policies. "We should have a share of the USO fund as we are also committed to have telecom presence in the rural areas, besides lowering of levies and duties from existing 14% to 6%. We think that the Access Deficit Charge (ADC) should be based on revenue sharing rather than call by call sharing, "he says.
Meanwhile, US-based telecom technology companies have started looking at the needs of the Indian telecom service providers. Companies like San Diego-based Continuous Computing with their wireless and VoIP product portfolio are offering solutions to lower the implementation cost. As it is, major obstacles in the growth of rural telecom have been attributed to heavy infrastructure cost and low returns.
"Wireless technology on the access side and VoIP on the network side offer cost-effective solutions and our solutions offer deployment of cost-effective solutions in the rural marker," claims Continuous Computing head Pradeep Malhotra.
Analysts say that convergence could be the answer to many problems. According to Mr. Baijal, next-generation networks in the rural areas will help to provide convergence of information, communication and entertainment services. His reasoning - India is one of those countries where cable connections are higher than fixedline ones. The number of fixedline connections was 47 million in 2003 in the rural areas while cable connections were 61 million.
"There should be a network which will help telephone and cable to effectively address the need of a large section of rural population." Mr. Baijal says.
