Reliance on rural promise

Indian carrier Reliance Communications launched 3G services in some of the country’s biggest urban centres at the end of 2010. The company aims to launch in all 13 circles where it holds 3G licences by the end of 2011. But with rural India experiencing strong growth, Reliance is also focusing on the harder to reach markets with customised products. Here, Mr R. Swaminathan, senior vice president at Reliance, updates us on this task.

Speaking at the Future of Wireless international conference, sponsored by Cambridge Wireless, last week, Swaminathan highlighted the importance of the rural markets, at a time when so much focus is on the heavy users of the urban centres.

There are some key challenges, but also some key opportunities in meeting the long tail in India. For a start, there is the sheer size of the market – 870 million people live in rural India and the rural economy is growing fast with earnings rising 14 per cent per cent year on year (annual earnings are averaging $360 per capita).

As a result, Swaminathan says, Indian service providers have noticed rural inhabitants are adopting two products, both geared towards entertainment,  at an amazing rate – the TV and the mobile phone. Around 43 per cent of households own a TV or radio and 33 per cent own a mobile telephone, he says.

Swaminathan attributes the strong growth in mobile adoption to several key factors. While there has been a major uplift in mobile usage in urban markets since 2001 when calling party pays was introduced – mobile penetration in the urban markets is around 151 per cent now – rural adoption is still lagging.

The regulator also had a big part to play in coverage expansion by spreading its spectrum allocations. In 2000 there was only one operator, government run BSNL. But by 2007 that number had risen to seven and by 2011 it had reached 15 operators. Since 2006, many of these operators have been making forays into the rural markets as competition became increasingly tough in urban areas. Due to the rising number of carriers, more affordable tariffs were available, with prices per minute dropping from about $0.20 in 2000 to around $0.01 in 2011.

At the same time operators also decided to package products differently. In 2000 most operators had just embarked on handset subsidies, enabling the vendors to drive terminal availability. “Consider that in 2000, a monochrome device with few features cost $450, but a device with many features now costs $26,” Swaminathan says.

The creation of a new obligation fund, where five per cent of each operator’s annual earnings are placed in a kitty dedicated to subsidising anyone who rolls out a rural network has encouraged more players into rural markets. While the equipment vendors have also played their part through the reduction of kit costs and power consumption.

“By 2015 there will be more rural subscribers than urban subscribers,” says Swaminathan, “and what has driven this penetration in the rural market is increased income and lots of customisation of products.

“ARPU in the rural market is only $2, so how do you make a profit? That’s where the majority of innovation comes out  – how to make the low cost model work.” By way of an example, Swaminathan introduced a fixed wireless phone, that acts as a landline. He likens it to a small, low power consumption refrigerator pitched by one of the country’s utilities.

“A farmer or rural inhabitant with a mobile has a much better social status and it’s easier to get credit from banks and financial institutions,” says Swaminathan. “Also it’s easier for the farmer to be in touch with his peers and learn best practices, because he can interact with them more regularly. Better information helps the farmer get better prices.”

It’s a model not lost on the operators themselves. Industry associations have played a very important role in the sharing of best practices; the carriers are learning from each other. “The partnership of all the stakeholders – the vendors and the operators is important, because we need technology to have a human touch,” says Swaminathan. “Take for example Reliance’s IVR system, no one uses it. But when we open a service centre, the personnel there use the same IVR system to provide service to the customers face to face.

“Traditional business models of very high expense with lots of bells and whistles don’t work. India has 21 regional languages and lots of illiteracy, yet it is very ripe for broadband based services like video streaming. Data has the opportunity to jump start rural markets. While voice could just help people do things more efficiently, data can help deliver education, medicine and e-government. The key is keeping it low cost and low maintenance,” he says. “Rural markets are completely underutilised so we need to get business going there now.“

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