Rural telecom connectivity poses challenges and opportunities: study

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New Delhi, Jul 13: Telecom connectivity in rural areas poses a challenge and yet a highly profitable enterprise. Telecom companies across the country understand the business imperative of expanding into this domain, according to a study done by Ernst & Young in collaboration with the Indian Chambers of Commerce and Industry (FICCI).

The study noted that the need for subsidisation of rural telecom projects are on the decline and in this context proactive regulation regarding spectrum, new technology and infrastructure sharing can help facilitate rural coverage.

India has 63.5 million telecom subscribers in rural areas, which includes 52.5 million wireless and 11 million wire lines – approximately 7.5 million net additions each quarter. Telecom penetration in rural areas is about 7.9% and average revenue collected per user is Rs 150. According to ITU report of May 2008, India has connected 91% of its some 600,000 villages with payphones.

Listing out the challenges of rural connectivity, the Ernst & Young-FICCI study said that low income and geographical variance pose difficulties for network layout as well as for setting up of distribution channels in remote areas. Low average revenue per user generated by rural customers does not offset return on investment and revenue for rural outlay for private operators. Lag in the accrual and disbursement of Universal Service Obligation funds for setting up technologically advanced schemes, including IP based network, Very Small Aperture Terminals (VSAT) also poses a problem. Besides there are non-availability of sufficient back-haul capacity between district headquarters and the block headquarters in rural areas. In some cases the optical fibre network only reaches up to district headquarters.

The study called for an urgent need to shift emphasis from the present village phone terminal subsidy and individual district exchange line subsidy to infrastructure growth empowering subsidy. It also suggested the need for customized applications and content in local languages in the handsets to suit rural subscribers.

The study noted that the necessity and value of a comprehensive network expansion have been identified by stakeholders. Business models that are tailored to reduce operational costs and promote savings on capital expenditure are being redefined to meet the rural opportunity. It suggested that the operators can learn from interesting business models that have been experimented across the developing world for expanding rural connectivity.