Growth in Indian rural tele-density not an easy task - says E & Y !

Research firm Ernst & Young (E&Y) has said while the government and private operators continue to push for rural telephony, its proliferation in the hinterland will be faced with many challenges. “The cost of delivery is likely to be high in view of the specifics of the Indian reality. Hence, connecting rural India would mean incurring a much higher cost per subscriber to capture low ARPU subscribers,” said E&Y telecom industry practice leader Prashant Singhal.

Telecom operators may be banking big time on the untapped rural markets for the next wave of growth, but the number of connections in hinterlands will not increase beyond 150 million by 2011, according to a study. “Mobile connections in rural geographies will be constrained by coverage of network infrastructure and affordability of handsets which will limit consumption,” London-based Centre for Telecoms Research (CTR) has said. The government has set a target of 500 million cellular connections by 2010 and DoT expects a fifth of these will be in rural areas. While operators are rolling out extremely low-cost handsets, industry analysts feel driving usage in rural areas will not be easy. Network management itself remains a challenge in the difficult terrains and this is topped with erratic power supply leading to high genset costs. The main stumbling block in rural areas is the high cost of building infrastructure versus low revenue opportunity. However, government initiatives like the Universal Service Obligation fund (USOF), shared infrastructure and managed network services would help to address these issues. All operators contribute 5% of their revenues to the USOF, used to provide rural telephony. Recently, the government has finalised contracts for setting up 8,000 towers in rural India with support from USOF. This is expected to help the government in providing an additional 50m connections in rural India. Currently, the rural teledensity is nearly 2% while urban teledensity is over 40%. This hyper growth in urban areas will also make things difficult for operators going forward. The CTR study expects urban populations of India to reach high levels of mobile phone saturation in the next five years, to the extent where many phone users will have two or more handset connections. A large portion of this growth will arise from pre-paid connections, driven by the increasing affordability of handsets and tariffs amongst India’s lower middle classes. “The phenomenal growth in the Indian mobile phone market has largely been driven by urban consumption. We expect this to continue with urban geographies achieving saturation levels similar to current Western European markets in the next five years,” said CTR research director Raj Modi.