Will India hit the bull’s eye of 500 million phone connections by 2010?
On the face of it, the target set by the government may look easily achievable, given that 8 million new subscribers are being added every month, and countrywide connections currently hover around 280 million. A closer scrutiny, however, makes the numbers appear somewhat elusive.
So far, much of the growth has been driven by demand in cities and towns, where rising incomes and falling costs of mobile phone ownership has helped India emerge the world’s fastest growing telecom market.
But the numbers in urban areas are fast approaching a plateau and about 40 per cent of the population there is already connected. So, meeting the 2010 target would, therefore, hinge upon what happens to demand for phones in the rural countryside, where less than 5 per cent of people own a phone, according to a recent study by the Boston Consulting Group.
Analysts say demand for nearly half of the next 220 million connections will have to come from villages. That is a challenge considering a large part of our rural population lives at a subsistence level.
“It is an ambitious, but achievable target,” said Mahesh Uppal, an independent telecom analyst.
Telecom operators have been slow in moving into rural areas, because it involves huge investments in infrastructure and returns are uncertain.
“Expansion of networks, drop in handset and tariff reduction is going to play a key role in tapping rural markets”, said Rajat Mukarji, Vice President, Corporate Affairs at Idea Cellular. Doing that isn’t going to be easy.
Typically, a company spends anything between Rs 25 lakhs to Rs 30 lakhs to set up a tower with a coverage spanning up to a radius of a kilometer. In the countryside, you might find just a couple dozen potential customers or less in that area, whereas one extra tower could net you several hundreds of them.
“Overall profitability of the business is still an issue in rural areas,” Uppal said.
To tap the markets across the length and breadth of the country, India needs about 345,000 towers, out of which 225,000 towers will have to built over the next three years.
Analysts say the key differentiator for the operators to have a subscriber base in rural areas without inflated capital expenditure is how they evolve a mechanism to share the tower infrastructure. “The terms and conditions of the tower company are generally not favorable to the tenants, and that needs to be changed”, said Navin Mishra at consulting company IDC.
Until recently, few private operators were present in villages. That is changing lately. Companies like Airtel Ltd. And Vodafone now have about 10 million each subscribers in rural areas, although a majority of them in prosperous villages or located close to state highways.
Others are trying to adopt new methods to spur demand for phones in the countryside, so to make their business viable there.
For instance, Tata Teleservices Ltd. runs training programmes for teachers in Uttar Pradesh state to educate people about utility of a phone. The company also is working handset manufacturers to offer value-added services in local languages, said Vineet Bhatia, who head’s Tata Teleservices’ northern India operations.
Some plan to provide information on crop weather, yields and fertilizers. That said, there is scope for growth in cities and towns.
“To crack open the market, the operators will have to collaborate with players from other industries”, said Arvind Subramanian, consultant at Boston Consulting Group
Creating multiple users in a household and offering additional services like mobile banking and mobile commerce are the ways to tap the potential in cities, he said.