Just five years ago, the Indian telecom industry barely included the poor. The country had a teledensity of 7/100 people, but in rural India 100 people were served by only 1.5 phones. Even in urban India, the poor were unconnected. Now, the picture is different. Even though the rural-urban divide remains, with rural teledensity of 13% lagging far behind urban teledensity of 81%, massive progress has been achieved. This difference, however, masks some important characteristics of the progress. For companies like Bharti, Vodafone, Idea, Aircel and BSNL, approximately one third of subscribers are from rural areas. Moreover, this data is generated from the supply side and in order to gauge the nature of access, demand-side data may be more reliable.
The question one seeks to answer is: is this growth making an impact at the bottom of the pyramid (BOP)? What explains this market-driven growth and what are the pointers for sustaining such growth in the future? Of course the market will not achieve universal service and a well-designed universal service vehicle is important.
This vehicle, if appropriately designed, will facilitate additional investments, mobilised through interventions in the efforts of the market.
A 2008 study of teleuse among BOP households by LIRNEasia, yields some intriguing answers. Because the data comes directly from end-users, it captures aspects not picked up by the usual supply-side data. The study represents 429m Indians belonging to socioeconomic classifications D and E between ages 15 and 60. Among the BOP, 86% had made or received a call in the past three months. The access challenge has been more or less met.
In 2006, for every one rural BOP teleuser household there were 1.4 urban households with a phone. In 2008, the ratio was 1:1.1, almost level. There are more phones in urban BOP households, but when the question is simply whether the respondent has a mobile or a fixed phone, the rural BOP does almost as well as the urban BOP.
Now, 55% of BOP teleuser households are unconnected and 61% of the non-owner teleusers say they can?t afford to connect; 33 say they do not need to. Of the non-owners, 28% say they plan to get connected within a year. And what do they plan to connect through? Mobiles. The phone has come closer to the unconnected, both in urban and rural India. In 2006, 13% of rural non-owner teleusers at the BOP had to travel 30 minutes to get to a phone; in 2008, only 2% had to.
At 10m new connections a month, India?s telecom sector is a great growth story; but it is also an exemplary narrative of inclusive growth. On being asked how long they had owned a mobile phone, response from 3,125 participants generated the figure seen above.
When the 1999 telecom policy was announced, the BOP was outside, looking in. Five years later, 33% of the current teleusers at the BOP were connected. Urban and rural connectivity grew at a torrid pace from 2004, with the urban growing faster until recently. With 44 % of teleusers having mobiles, urban India is still ahead of rural, where only 39% do. But 27% of rural BOP households got connected last year.
Since most of this growth is market-driven, the obvious explanation is that service providers have succeeded in developing a new business model through service process innovation. Establishing competition through liberal policies was important. Once competition was established, the market took over. The budget telecom network business model pioneered by South Asian operators, based on generating optimum usage of the existing networks from as many customers as possible, fuelled this growth.This allowed operators to exploit ?long-tail? markets, using prices near marginal costs and very high network utilisation. Governance and telecom regulatory conditions, though not optimal, created the conditions for innovation by increasing competitive pressures through the issuance of new licences and gradually reducing pernicious aspects of regulation such as excessive access-deficit charges and unfavourable interconnection rates. Decreasing equipment costs, driven by massive growth in the Chinese market and elsewhere, contributed. The switch from postpaid to prepaid reduced transaction costs, enabling exploitation of ?long-tail? markets. Then came the micro prepaid recharge that offered talk time in denominations as low as $ 0.25. This ?chhota? recharge was a shift from the earlier urban-centric monthly bills geared to monthly incomes; it was ideally suited for a daily wage earner.
The most important lesson we draw is also the most trite: low prices increase usage by present customers and attract new customers; the resulting higher utilisation of the network enables operators to cover opex and capex, generating profits that make it possible to grow networks at low price levels: these allow high network utilisation.
In light of good performance in terms of increased connectivity, low prices and greater choice yielded by the new business model, it is in the interest of governments and regulators to facilitate its successful implementation. Good ex ante policies in areas such as market entry, M&As and taxation (including universal-service levies) have to be further tuned to allow the market to percolate its benefits to the BOP. In this context, ex post antitrust regulation assumes a larger importance, given that freer markets have the solution to access gaps.
?Rohan Samarajiva is chair and CEO, LIRNEasia and Payal Malik is advisor, Indicus Analytics
