Telecom Channels: Connecting the Hinterland

Telecom service providers of India are now venturing into the
remotest and poorest part of the country where no telecom entrepreneur has ever
dared to enter. Whether its Motu in Orissa or Katabari in Assam, telecom
companies are trying to make sure that every living person of this country has
access to a mobile phone. They are embarking on a major plan to roll out mobile
services to hitherto unexplored geographies of the country and they see future
growth from these geographies, as urban and metro areas are nearing saturation.

These villages might not have basic infrastructure like
hospitals, schools or roads in place, but soon people of these remote places
will get to see a number of mobile towers and billboards inviting them to
express themselves or stay connected to their near and dear ones living away.
Soon, they will have access to mobile brands such as BSNL, Airtel, Reliance,
Idea, Tata, and Hutch.

Hidden Treasure

Providing mobile services in rural areas has almost created a virtual fight
among private mobile operators. And, this can be gauged by recent bids received
by the Department of Telecommunications (DoT) for a Universal Services
Obligation (USO) fund project that envisages setting up cellular infrastructure
across 2.5 lakh villages that have not got any telecommunications services yet.
While the government is willing to give subsidy to companies willing to provide
telecom services in these villages, almost all the telcos have put in zero bids
or negative bids, that means these operators are willing to offer cellular
services in rural India without any subsidy from the government. Even some are
ready to give money to the government instead of taking support from the USO
fund.

But what makes these operators so adventurous? The potential,
undoubtedly. Around 70% of the country's population lives in villages. The
entire country's network backbone comprises of around 6,000 towns and six lakh
villages. But still, Indian entrepreneurs of the fastest growing telecom
industry have been quite averse to entering this market. And that is why
teledensity of rural population to urban is 2:50, which is one of its kinds in
the world! Also, this is not going down well with mobile operators, not because
of this huge disparity but because they can see the treasure hidden in villages.

The proposed USO project will give access to a mobile phone
access to another 270 mn people with the help of 7,871 towers, and expand the
geographical coverage of telecom services by about 20%.

But this was not the case few years ago, when at the slight
mention of rural telephony, the same operators were getting shivers up their
spines. At that time, they used to term these villages unviable, uneconomical
and unreachable. For instance, the village public telephone (VPT) project, which
envisaged setting up a public telephone in nearly 6.5 lakh villages across the
country. After two years of the project, most private operators who had then
taken up the responsibility to set up these VPTs gave up, leaving the
state-owned BSNL to complete their share as well.

One more example is the rural community phones project which
started in September 2004 under the USOF. Besides BSNL, Reliance Communication
was the only private operator to take up the project and after three years is
yet to setup 5,741 rural phones out of the 21,431 envisaged under the project.

Surprisingly, the USO fund, which has been set up specifically
to better the dismal rural telecom penetration, has more than $2 bn lying
unused.

Spreading Wings

Moving from urban areas, operators are now taking into consideration
villages with as little as 1,000 people. "A few years ago, operators would
not consider rolling out telecom services to areas with less than a 10,000
population. This has now come down to 5,000 and in a few years time we would get
into clusters of villages that have just 1,000 people," says Pradip
Srivastava, chief marketing officer, Idea Cellular.

Industry associations have also shared the same opinion.
"With over 6-7 mn subscribers being added every month, operators are going
after every subscriber they can find in this country," says TV Ramachandran,
director general, Cellular Operators' Association of India (COAI).

In the current scenario, it seems private operators have smelt
blood in villages. Almost all operators have huge plans for rural India. Airtel,
for instance, has adopted the 'match-box approach', which essentially will
ensure Airtel's availability wherever a match-box is available, even in the
smallest and remotest corners of the country. "The other key initiative is
our 'Chappa Chappa" approach which supports our objective of reaching out
to all towns with a population of less than 5,000. We believe that the next
level of growth will happen from these geographies," says a Bharti Airtel
spokesperson. Currently, Airtel is present in 4,581 census towns and 176,593
non-census towns and villages in India, thus covering approximately 54% of the
country's population. Airtel is having over 490,000 retail outlets (as of
December 31, 2006) including over 1,000 dedicated Airtel Relationship centers.

Likewise, Tata Teleservices has invested close to Rs 4,000 crore
for network expansion in FY '06-07 and currently has presence in over 3,400
towns. Also, it is planning to add another 1,000 towns by the end of this year.
In terms of retail spends, the company has invested close to Rs 80-100 crore, to
augment its retail presence in the country and currently has close to 2,900
outlets. Besides these outlets the company retails through 60,000 dealers spread
across the country. It has over 140 True Value Hubs (TVH), close to 2,300 True
Value Shoppes (TVS) franchisee and 400 plus company owned and operated outlets.
The TVH provides an 'Integrated Service Center' for Tata Indicom offerings
and is designed to offer end-to-end experience for customers. These hubs are
equipped with high profile touch screens and an experience hall. Tata Indicom
'TVH' offers display of products and services, online Internet, broadband
connections, twenty-four hour payment machines which accept cash and cheque
payments, and is strategically visible for high street retailing.

Spice Telecom, a regional operator, which operates in nine out
of twenty-three telecom circles will also be rolling out its services in the
remaining fourteen telecom circles for which it obtained licenses during
December 2006. Additionally, Aircel has also obtained the nod from DoT to
provide international long distance (ILD) and national long distance (NLD)
telephony services. However, these new rollouts will happen as per the
availability of spectrum and is likely to happen over a period of next two
years. The company sells its postpaid connections through franchisee outlets
branded as Aircel Cell City and prepaid connections through retail outlets. They
have more than 150 Cell City outlets in Tamil Nadu and sell prepaid through
30,000 outlets.

A New Approach

For rural area penetration, most operators follow varied distribution
system. "Operators are now looking to roll out services in the nook and
corner of the country. There is a huge untapped market and operators now have a
rural-focused rollout plan," says Ramachandran. Apart from the traditional
three-tier distribution system-service provider to distributor to retailer-operators
are now roping in rural distribution channels like the postal department or
Public Distribution System (PDS). Spice Telecom, for example, is already in
talks with the postal department to reach the rural mass. Likewise, in order to
reach out to every prospective customer, Bharti is adopting various routes in
varied market segments. They have tie-ups with low-cost handset manufacturers to
reach out to the lower-end market segment, and have also tied up with the
Canteen Stores Department (CSD) to launch Airtel Jai Jawaan prepaid cards for
the Army defence personnel. These cards are available across 1,900 CSD outlets
in the country-starting from Leh to Kanyakumari, Misamari to Kuchh. Some
operators are also inking deal with rural initiatives like ITC's e-Choupal,
Haryali Bazaar stores of DCM Sriram and Godrej's Aadhar stores. Industry
sources say, the state-owned BSNL is planning to tie-up with rural co-operative
banks to push its service more aggressively.

Affordability is the Key

According to a recent report by LIRNEasia, close to 100 mn new cellular
additions are expected to come from rural areas over the next two years, and
prospective subscribers would be reasonably heavy users, making an average of
forty calls a month.

However, analysts caution that while operators are rolling out
networks to remote and poor areas, they also need to bring down the cost of
owning a phone if they want to penetrate a highly budget-conscious rural market.
For this reason, almost all operators are in talks with various handset makers
for a low-end phone that they can bundle with. Motorola is ahead of others in
coming up with handsets priced at Rs 1,000 plus and service providers are
looking forward to this type of models as village folks would by and large use
phones for voice service and not data.

Operators say they are aware of the factors that could pull the
plug off their rural plans. "We are adopting various routes to reach out to
varied market segments. Our tie-ups with low-cost handset manufacturers, for
instance, is an essential part of our strategy to reach out to the lower-end
market segment. We also have introductory offers on prepaid packs with a lower
entry cost from time-to-time. Our RC200 prepaid card, lifetime prepaid and our
easy lifetime prepaid are revolutionary products that unlocked the potential in
rural areas and smaller towns," says Bharti Airtel spokesperson.

Idea Cellular is making its services more suitable for the rural
population. "Apart from tariffs, which is anyway rock bottom, we are making
value added services more relevant for the agri-economy. The mobile should
become a tool that offers the farmer an opportunity to increase his
business," says Srivastava.

Now, mobile operators are playing with cards closest to their
heart. It seems they have already conquered one battle by covering the whole of
metros and 'A' category circles and now are all set for the big battle-conquering
villages. And, this is not going to be a walk in the park unless and until some
key factors like affordability is not taken care of.

Gyana Ranjan Swain

gyanas@cybermedia.co.in