Why Telcos Need a New Approach for Growth in Rural Market?

Rajesh Mishra, Founder, Parallel WirelessFor quite some time, the Indian telecom sector is going through a lean phase. The industry with a focus mainly on the urban market -- which has hit a saturation point – is facing the challenge of falling Average Revenue per User (ARPU) in this market. However, telecom service providers continue to be reluctant to expand their rural presence, where demand continues to grow. What is hidden behind India’s impressive overall tele-density – the number of users for every 100 population – figure of 94 percent is a relatively low rural penetration. As per data released by the Telecom Regulatory Authority of India (TRAI), the rural tele-density remains at measly 56.8 percent at the end of August 2017 compared with the urban density of 174 percent .Out of the total population of 1.2 billion, 833 million, or 70 percent, live in the rural areas. Out of these 833 million, only 506.1 million are connected to the wireless networks in the country. Despite falling smartphone prices and affordable data and voice tariff, 40 percent rural population continues to be unconnected to the telecom network.

Reasons for Reluctance towards Rural Push
Despite growing demand and many other favorable factors, service providers remain wary of rural expansion. The main reason for this is lack of telecom infrastructure in rural areas. There is reluctance on the part of telecom service providers when it comes to creating infrastructure in rural areas. The reason being the high cost of setting up and managing the network infrastructure in these areas, which are marked by difficult terrain and uneven population distribution.

Coupled with poor infrastructure, a low ARPU in rural markets further makes it difficult for telcos to operate in this market. To understand the difference in ARPU in urban and rural areas, just have a look at these figures. The average monthly ARPU in Delhi Circle during April-June 2017 quarter was Rs 105, while for West
Bengal Circle(other than Kolkata) it is as low as Rs 69. Low return on investment is the key reason for telcos reluctance to expand in the rural areas.

A CARE Ratings recent report sums up the situation. It observes that the telecom companies find it financially viable to add capacity in existing areas (mostly urban areas) rather than setting up capacity in new areas. To add to the telcos’ problem is falling margins from its urban operations due to the hyper competitive environment. This further, prevents the telecom companies from cross-subsidizing the rural market. It is, therefore, necessary for the companies to keep changing their strategies and reinvesting their approach to spread their footprint in rural markets.

The reason being the high cost of setting up and managing the network infrastructure in these areas, which are marked by difficult terrain and uneven population distribution

Reinventing rural market strategy
Experience from global markets shows the need of rural telecom customers similar as to that of urban customers. They are equally quality conscious as the urban customers are and therefore, expect best services. The only difference is their low purchasing power, which explains low ARPU. The message is clear for these companies – explore innovative and cost-effective solutions to not just have a sustainable but a thriving business model in rural markets.While the key to success in the rural market continues to be a high volume – low-cost approach, how to implement this strategy is critical. The market mantra that rural population needs simple services is passé, and telcos need to change this perception soon. The belief that 2G and 3G services would be more popular than 4G in rural markets is also a thing of past. The success of Reliance Jio's 4G services has changed the rural market dynamics forever.

Besides, it is no longer the voice services but data that would drive the rural market. Therefore, the companies need to figure out affordable data packs for rural population over and above the voice calling packs. This should increase demand and as a result volume in this market. The need is also to go for out-of-the-box thinking to not only address the unique problems faced in rural markets but also to offer cost-effective solutions. For example, to tide over the issue of unavailability of power grid in rural areas, telecom players should go for cell sites, which consume less power to bring down the cost. They can also explore base stations that run on solar energy or alternate source of energy.

Virtualized 2G network is another option which the service providers can use to address the rural market. It is easier to install, consumes less power and allows telcos to upgrade to 4G whenever the subscribers are ready. Telcos may also go for low maintenance base stations which can be managed by the community, thus bringing down the operational expenditure further. Rural market is the next frontier for telcos facing falling fortunes in the urban markets. However, to tap the potential in the countryside, telcos must unlearn a few things and approach the market with different and innovative strategies.