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October 13, 2005 4:46 pm

India’s rural majority gets connected

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India’s mobile phone market may be growing faster than any other in the world – at 35 per cent a year over the next five years in terms of revenues, but people in rural areas – the majority of the population – have not been invited to the party.

The Telecom correct Regulatory Authority of India is hoping to bring the mobile revolution to those people through a set of recommendations that would give wireless operators an incentive to spread coverage to non-urban areas.

The recommendations now need approval by the government, a process likely to happen in the first half of next year.

Some 70 per cent of India’s citizens live in villages or small towns but only 2 per cent have access to fixed-line or cellular phones. The figure contrasts sharply with overall urban penetration of 31 per cent, while New Delhi and Mumbai are higher yet at 42 per cent and 53 per cent respectively.

The predominant mobile operators in India are: AirTel, which is owned by Bharti Tele-Ventures and which has a market share of 21 per cent; Reliance InfoComm, with 20 per cent; Hutchison Essar with 15 per cent; government-owned Bharat Sanchar Nigam with 12 per cent; and Idea Cellular, with 8 per cent. Other players include Tata Teleservices, Spice and AirCell.

In a recently released report, the TRAI suggested a host of measures that would expedite the growth of telecoms services in rural India, including using subsidies from a common fund to construct base stations, the sharing of infrastructure by different operators, and offering discounts on licensing and spectrum fees to mobile operators.

“If India is to progress to higher gross domestic product growth, tele-density is an indicator of how fast an economy is growing,” said Rajendra Singh, head of the TRAI secretariat and one of the authors of the report.

The TRAI said the recommendations were largely focused on bringing wireless coverage to rural areas since fixed-line technology was antiquated and operators had done an inadequate job. “Nobody is laying copper lines any more,” Mr Singh said. “Mobile phone technology is growing and is the best option for operators.”

The TRAI recommended that Rs80bn ($1.8bn) from the Universal Services Obligation Fund, to which all telecoms operators in India already contribute, be used to set up 20,000 new base stations across the country.

The subsidies, however, would only be given to operators that shared infrastructure. “The cost to each operator will come down,” Mr Singh said, adding that erecting one base station cost Rs7m.

Analysts said the plan was largely workable, but that the regulatory body should impose restrictions on rolling out base stations because operators were likely to flock only to rural areas they thought lucrative, like the western states of Punjab, Gujarat, and Maharashtra, while ignoring poorer states like Utter Pradesh or Bihar.

“It defeats the purpose of expanding connectivity,” said Kobita Desai, head telecoms analyst at Gartner Research. “There has to be a roll-out obligation. They have to work this out very stringently.”

In its report, the TRAI also sought to counter widely-held beliefs that rural households had little purchasing power. The report said villages accounted for the purchase of 53 per cent of consumer goods in India.

The report showed that some 17 per cent of rural households were in a middle to high income level, while 35 per cent fall into a lower middle income group. This was roughly the same as the 34 per cent for urban households.

“The discussion give above clearly shows that there is substantial purchasing power in the rural areas,” the report said.

Ms Desai said expanding telecoms coverage to rural areas would fuel India’s rapid mobile phone acqhuisition rate, currently at 2 million subscribers a month. “You would add 5 million subscribers a month,” she said.

She said that overall, the TRAI’s recommendations  were sound. “The TRAI has been proactive in taking forward-looking decisions and the government has by and large supported them.”

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