A Project Report On Penetration in Indian Rural Telecommunication Industry

(Service Marketing)

Submited to:- Submitted by:-

Prof. Deepankar Mukherjee Ambesh Kumar Srivastava(FT-08-616)

Ashish Sharma(FT-08-633)

Deepesh Sharma(FT-08-640)

Sudipto Ghosh(FT-08-745)

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ACKNOWLEDGEMENT

We would like to thank our faculty Prof. Deepankar Mukherjee for giving us the opportunity to excel and work in the field of Service Marketing. While developing the plan we have learnt many things which will undoubtedly help us in the future.

A well combination of theory and practice helped us in compiling this report on “Penetration in Indian Rural Telecommunication Industry”.

We are also grateful to all those people who directly or indirectly helped us in accomplishing this project.

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TABLE OF CONTENTS

Title Page No

Indian Telecommunication Industry 4

Investment 5

Government Initiatives 6

Top players 7

Reasons for growth 8

Problems faced 8

Bharti Airtel 9

Future Development 10

Rural Telecom Market – an emerging market 11

Reasons for Rural Inclination 12

Major Issues 13

Possible Strategies 13

Constraints in the Penetration of Rural Telecom 16

Conclusion 19

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Indian Telecommunication Industry

The Indian telecommunications has been zooming up the growth curve at a feverish pace, emerging as one of the key sectors responsible for India's resurgent economic growth. India has surpassed US to become the second largest wireless network in the world with a subscriber base of over 300 million in April, according to the Telecom Regulatory Authority of India (TRAI).

The year 2007 saw India achieving significant distinctions:

1 Having the world's lowest call rates 2-3 US cents

2 The fastest growth in the number of subscribers 15.31 million in 4 months

3 The fastest sale of million mobile phones in a week

4 The world's cheapest mobile handset US$ 17.2

5 The world's most affordable color phone US$ 27.42

6 Largest sale of mobile handsets in the third quarter

Segment-wise growth

Wireless segment has emerged as the preferred mode of telephone service by the consumers, reflected in the rising share of mobile phone connections to total connections.

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1. The share of mobile phones has increased from 71.69 per cent at the end of March 2006 to 87.68 per cent at the end of May 2008.

2. While total mobile subscriber base was 277.92 million, wire line subscriber base was 39.05 million.

3. Consequently, overall tele-density has increased to 27.59 per cent at the end of May 2008.

India is likely to be second largest mobile market in the BRIC (Brazil, Russia, India and China) nations, with 560 million mobile users representing the next great growth curve for both mobile and interactive marketing industries, according to a report by eMarketers.

Investment

The booming domestic telecom market has been attracting accelerating amount of investment. During April 2000 to March 2008, cumulative FDI inflows into the Indian telecommunications sector amounted to US$ 3.84 billion, accounting for 6.81 per cent of the total FDI inflows into the country. In fact, the surge in mobile services market is likely to see huge amount of investment implying a mobile in the hands of every second person in the country.

Buoyed by the rapid surge in the subscriber base, huge investments are being made into this industry by companies like• Maxis Communications-owned mobile service provider Aircel • Srei Group's Quippo Telecom Infrastructure Ltd (QTIL) • The Central public sector enterprises(CPSEs) have lined up investments for infrastructure

sectors like telecom energy and power for 2008-09. • Vodafone Essar will invest US$ 6 billion over the next three years in a bid to increase its

mobile subscriber base from 40 million at present to over 100 million.

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Government Initiatives

Government has taken many proactive initiatives which have provided a framework for the rapid growth of the telecom industry.

• Opening the industry for private sector participation. • 100 per cent FDI is permitted in telecom equipment manufacturing through the automatic

route. • FDI ceiling in telecom services has been raised to 74 per cent. • Establishment of an independent regulator - the Telecom Regulatory Authority of India

(TRAI)-for the telecom sector. • Introduction of a Unified access licensing regime for telecom services on a pan-India

basis. • Implementation of New Telecom Policy (NTP'99). • Introduction of Calling Party Pay (CPP) regime and lowering of access deficit coupled

with introduction of revenue share regime in ADC. • Introduction of Mobile Number Portability in a phased manner, starting with the fourth

quarter of 2008. • Allowing service providers to share active infrastructure.

Road Ahead

According to a report by Boston Consulting Group, while only one in 20 of the world's first two billion mobile subscribers live in India, as many as one in every four of the next billion subscribers will be an Indian.

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The department of telecommunication estimates the total subscriber base to total 500 million by 2010, out of which 80 million are expected to be from rural areas.

The Indian telecom industry's revenue, likewise, is estimated to increase, which according to Ernst & Young is expected to total US$ 35 billion, accounting for 3.6 per cent of the total GDP of the country.

With such growth projection, this industry is likely to see increased investments. In fact, total investment is projected at US$ 76.6 billion during the eleventh plan period (2007-12). Private sector is estimated to continue its dominant share, accounting for 67 per cent of the total projected investment while public sector accounts for the rest.

Top players

Cellular services can be divided into two categories: Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). The GSM sector is dominated by Airtel, Vodafone-Hutch, and Idea Cellular, while the CDMA sector is dominated by Reliance and Tata Indicom.

GSM CDMA

Surprisingly, CDMA market has increased its market share up to 30% thanks to Reliance Communication. However, across the globe, CDMA has been losing out numbers to popular GSM technology, contrary to the scenario in India

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Reasons for growth

The two major reasons that have fuelled this growth are

1. Low tariffs 2. Falling handset prices.

Problems faced

The bottlenecks for ' Indian Telecom Industry ' are:

Slow reform process. Low penetration. Service providers’ bears huge initial cost to make inroads and achieving break-even is

difficult. Lack of infrastructure in semi-rural and rural areas, which makes it difficult to make

inroads into this market segment as service providers have to incur a huge initial fixed cost.

Huge initial investments. Limited spectrum availability and interconnection charges between the private and state

operators.

By 2010 Airtel will be the most admired brand in India:

Loved by more customers Targeted by top talent Benchmarked by more businesses

“We at Airtel always think in fresh and innovative ways about the needs of our customers and how we want them to feel. We deliver what we promise and go out of our way to delight the customer with a little bit more”

Bharti AirtelTelecom giant Bharti Airtel is the flagship company of Bharti Enterprises. The Bharti

Group, has a diverse business portfolio and has created global brands in the telecommunication sector.

Airtel comes to you from Bharti Airtel Limited, India’s largest integrated and the first private telecom services provider with a footprint in all the 23 telecom circles. Bharti Airtel since its inception has been at the forefront of technology and has steered the course of the telecom sector in the country with its world class products and services.

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The businesses at Bharti Airtel have been structured into three individual strategic business units (SBU’s) - Mobile Services, Airtel Telemedia Services & Enterprise Services. The mobile business provides mobile & fixed wireless services using GSM technology across 23 telecom circles while the Airtel Telemedia Services business offers broadband & telephone services in 94 cities. The Enterprise services provide end-to-end telecom solutions to corporate customers and national & international long distance services to carriers. All these services are provided under the Airtel brand.

Business Divisions

FUTURE Development

In the mobile business, Bharti Airtel plans to make considerable investments in Network expansion to establish presence in all census towns and over 500,000 villages across India by 2010, thereby covering 95% of the country’s total population. The company’s strategic focus will be on further strengthening the Airtel brand through best-in-class customer service, which is backed by wide national distribution.

The Airtel subscriber base according to COAI - Cellular Operator Association of India as of May 2008 was:

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The total is 67,425,935 or 32.81% of the total 205,460,762 GSM mobile connections in India till May 2008.

Targets

Aggressive efforts are on to provide a superior network service that is congestion-free and to help customers get connected the first time.

Also, the SMS capacity is sought to be raised from the current 5,500 messages per second to 6,500 messages per second by March 2009.

After establishing itself in the domestic market, Airtel is now spreading its wings in US by providing its mobile service under the name 'CALLHOME' to the NRIs.

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007At Year Ending March

Tele

density (

%)

Urban Total Rural

Rural Telecom Market – an emerging market

According to numbers compiled by the Telecom Regulatory Authority of India, nearly 21 per cent of the mobile user base now resides in the villages of India, where a few years ago none of the operators wanted to venture. As on September 2007, out of the 209 million mobile users in the entire country, 43 million were in rural areas.

As the government targets to increase rural teledensity from the current 2 percent to 25 percent by 2012, rural telephony will require major investments. This segment will boost the demand for telecom services, equipment, Internet services and other value-added services; thereby, offering great market opportunities for telecom players.

Rural India will wrest 40 percent of new telecom market

India’s rural telecom connectivity is poised for explosive growth in the next five to 10 years, grabbing a 40 percent share of the new market, a study released Wednesday said. “Of the estimated new 250 million Indian wireless users, in next 5-10 years approximately 100 million will be from rural areas,” said the study by the Federation of Indian Chambers of Commerce and Industry (Ficci) and Ernst and Young.

Operators have demonstrated they can achieve profitability by reducing fixed costs, controlling variable costs and carefully tailoring services to the requirements of their customers. A similar model with minor customization could be emulated in the rural areas.The government will roll out new incentives for mobile networks in rural India.It’s also planned that the ultra-low cost handset of approximately Rs.840 ($17) to the market with built-in subsidies, lifetime validity and minimal maintenance costs have promoted mobile usage in remote areas.Moreover, operators could learn from business models that have been experimented across the developing world for expanding rural connectivity.

Reasons for rural inclination

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Far from being considered as a social obligation, offering telecom services in rural areas has now become the hot spot for private telecom operators. Nearly 75 per cent of the mobile users in the villages are now owned by private operators as cellular phones catch the imagination of rural consumers. Until now, state-owned Bharat Sanchar Nigam Ltd was known to be the only significant rural telecom operator in the country.Analysts said that the share of rural telecom consumers will continue to increase as operators have initiated an aggressive roll-out plan to cover remote areas of the country. This is primarily driven by a slump in the growth rate of mobile user base in the metro and urban areas.

According to the data released by the Cellular Operators Association of India Circle C and Circle B States such as Bihar, Kerala, Madhya Pradesh and Punjab are showing better growth rates compared to the metros. Therefore, most of the mobile operators are investing heavily in setting up infrastructure in these circles.The telecom regulator has suggested a number of initiatives to make mobile connection attractive, including lower entry cost to make it more affordable.

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Airtel to focus on rural expansion

Bharti Airtel, which had 65 million mobile users in September 2009, had 9.80 million subscribers coming from rural areas.

Airtel, the leading mobile service provider, has planned to increase the pace of its network expansion in rural areas during 2008-09.

People in the rural markets are ready to go mobile and the growth depends on the strength and the quality of the network. Distribution has been growing at a rapid pace and Airtel will be in easy reach for all customers in the State. “We want to increase the brand presence and become far more local,” CEO said.

Major Issues

Following are the specific key issues which need to be deliberated for formulating the strategy for promoting telecommunications in Rural India:

Should voice penetration be given priority to attain desired/ predecided level and then push data or should both be taken up simultaneously?

The technological solutions to be adopted to provide voice and broadband at affordable rates? How should adoption of such technologies be promoted?

What would be the most effective business model for rural India?

Possible Strategies

As per the data provided by the service providers, around 407112 villages are having mobile coverage i.e. about 69% of villages are having the coverage. Taking around 180 million as the targeted rural subscribers in the country, as on Sep 2008, there are 90.76 million rural subscribers. Therefore, there is a need to plan for converting an additional 90-100 million population as subscribers.

The strategy for increasing the telecom penetration in rural areas can be classified in two categories:

A. Areas without mobile coverage B. Areas already having mobile coverage

A. Areas without mobile coverage

Creation of infrastructure for provision of Mobile Services in rural and remote areas:

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(a) The assets constituting the infrastructure for provision of mobile services shall be determined by the Central Government from time-to-time.

(b) A percentage of the Capital Recovery for the infrastructure for provision of mobile services shall be taken into account to determine the Net Cost.

Provision of Broadband connectivity to villages in a phased manner.

A percentage of the Capital Recovery for the infrastructure for broadband connectivity shall be taken into account to determine the Net Cost.

Creation of general infrastructure in rural and remote areas for development of telecommunication facilities

(a) The items of general infrastructure to be taken up for development shall be determined by the Central Government from time to time.

(b) A percentage of the Capital Recovery for the development of general infrastructure shall be taken into account to determine the Net Cost.

Induction of new technological developments in the telecom sector in rural and remote areas

Pilot projects to establish new technological developments in the telecom sector, which can be deployed in the rural and remote area, may be supported with the approval of the CentralGovernment.

B. Areas already having mobile coverage

Affordability of Services

As compared to urban population, rural people are more cost conscious and demanding as far as getting value for their money is concerned. Taking Rs 1000- 1500/ as the minimum cost of a handset, the cost for owning a mobile connection works out to be around Rs 1500-2000/-. As the reasons for owning a mobile phone in urban and rural areas are very different, therefore for attracting rural people to subscribe to mobile phones, there is a need to increase its cost effectiveness. Some of the methods could be:-

I. Lowering the cost of the handsets

Although the service providers do not have direct control over handset costs, they can and should work with manufacturers to ensure that handsets are both economical and practical for the rural consumers. Some steps can be taken to lowering the product cost discussed below:-

Evaluate the design and specifications of handsets to ensure that they meet the needs of the rural masses and do not contain extraneous features that push up their cost.

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Electricity is either unavailable or available for few hours in a number of villages; therefore, the handsets should have long-life batteries, built in flashlights and capability to charge the batteries from alternate sources such as tractor batteries and generators.

Reduce complexity and subsequent servicing costs – by relying on standardized keypads, screens, and other parts.

Bundling of handsets— A large number of the rural population does not have a steady employment, therefore there is a need to lower the upfront cost of mobile acquisition. This can be achieved by bundling the hand set along with the connection or offer handsets on an installment plan that increases over a period of time along with the benefits to the user. In large number of countries, it is a normal practice. However, in India, as the annual license fee is on the AGR of the service provider and the cost of the handset is also taken as a part of the AGR, therefore the service providers are not too keen to bundle the hand set along with the connection. USOF should look into this aspect and in consultation with DoT should devise a scheme for setting off the cost of the bundled handset provided to rural subscribers from the AGR.

II. Incentivizing a new mobile connection subscription Telecom service providers should come up with innovative concessional schemes for new subscribers

Providing locally relevant applications on Mobile

This could include applications on mobile regarding health, education, farming and other local trade. With proper communication infrastructure, it may also be possible to move business processes to rural regions. This should open up the growth potential of rural Indian economy.

Mobile Banking for Rural India

In many developing countries, lack of banking facilities in the rural area combined with a proliferation of mobile services has created a unique opportunity for providing financial services over the mobile network. Mobile phones are being used to transfer funds between people. These applications are working in countries like Philippines, Kenya, South Africa, Tanzania etc. These applications are driven by rural people who are looking for:

A safe place to keep money Accessibility / liquidity– The ability to turn electronic money into hard cash and vice

versa at convenient locations (agents/ATMs) Ability to transfer money – To and from the financial institution, to make payments and

to remit money to friends and relatives.

Overcoming the language barrier

The literacy levels are very low in rural India. Majority of the handsets are in English. So we should concentrate on region wise manufacturing of handsets in accordance with the needs and wants of the target customers and manufacture handsets in the major acceptable languages which will provide an ease in operation to the customers.

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Tie-up with Department of Post

Increasing the customer outlets for mobile payments/recharging: Rural post offices should be allowed to work as customer outlets for the telecom companies.

Local schools and community centers can provide the training needed to help local residents and businesses in rural areas and take advantage of new information technology.

The Dept of Posts has a presence in every corner of the country. The Postman is a known and recognized entity in even the smallest of human settlements. He personally knows every resident of his Beat, and in smaller towns/villages, probably is familiar with the people, their financial status, their needs, and requirements for communication services based on the letters / money orders being sent/received. The Postman can therefore be effectively used to educate the potential Customers and First-Time Users about the uses and benefits of the Services being offered. Also, there can be no better system for address verification and credit verification than the Postal Dept and more specifically the Postman himself. No agency can claim a similar level of familiarity with the Local residents and this knowledge that the Postman has built over many years of doing his Beat can never be replicated. This makes him the ideal agency for any kind of verification.

Constraints in the Penetration of Rural Telecom

Acquisition of Land

The first major hurdle in the proliferation of towers in the rural areas is that acquisition of land for BTS takes very long time. In large number of the cases, as the land belongs to either forest deptt/tribal areas or gram panchayats, the formalities required to be completed for taking the land on lease or outright purchase takes a long time and involves lot of effort.

Right of Way

In the rural area, for providing backhaul connectivity, if fibre or cable is to be laid then even though the laying is along kuchha roads or through forest, but as the route involves jurisdiction of multiple state and municipal agencies/panchayats, therefore to coordinating different agencies and getting the requisite permission is time consuming. These state agencies involved in the process takes a long time in granting the right of way and have also started charging exorbitantly higher amount for the permission for the laying.

Backhaul connectivity

Unavailability of cheap and fast backhaul connectivity is one of the major hurdles in faster proliferation of telecom in rural areas. Unlike urban areas where optical fibre is largely deployed to provide the backhaul connection, about 80% of the rural BTS are on microwave system. Though, at many places OFC connectivity has been provided but the provisioning cost is

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prohibitory high and as discussed subsequently, providing backhaul using the satellite link is a cumbersome process.

Lack of Infrastructure sharing

According to industry estimate, cost of setting up a cellular tower (BTS) is varies from around Rs 3-4 million inclusive of equipment, power plant, etc. Though significant number of existing cell sites are already being shared by competing operators across the country, however, this is mainly in urban areas. In rural areas, sharing of infrastructure is yet to be attained at a significant level/rate.

Power Supply

In a number of villages the power supply is either not available or is available only for few hours. As a result even if battery backup is provided for the BTS, due to availability of electricity for a very short duration, the batteries are not able to get fully charged. Further due to frequent interruption of power supply the life of these batteries get shortened which in turn increases operational cost to run services in rural areas. Unavailability of reliable power supply in semi-urban, rural and remote areas increases operational costs further because sufficient backup systems have to be maintained. As per the statistics, out of 5,93,731 inhabited villages (as per2001 census), 4,73,136 (almost 80 % ) have been electrified upto March 2008. The remaining villages are to be covered by 2009 as per Bharat Nirman Programme under Rajiv Gandhi Grameen Vidhutikaran Yojna. However, in practice, the frequent and long interruptions in the electricity supply put a large number of these villages at par with the non-electrified ones.

Operation and Maintenance cost

Maintenance costs of the network in rural areas are high as compared to urban areas because of several factors such as poor transportation systems, difficulty in supply of spare parts and non availability of skilled manpower etc. Due to lack of reliable power in rural areas there is substantial increase in the cost of diesel for running of the engine alternators for keeping exchanges, transmission equipment and BTSs in the live conditions.

Low Average Revenue per User (ARPU)

As per the license conditions the service providers are mandated to provide service to all without any discrimination. All subscribers, big and small, rich and poor, are entitled to get the same quality of service, tariffs and other conditions. However it is seen that Service Providers do not fulfill this license condition or at least are reluctant to venture into the interior rural areas where expected ARPUs are low. The profit motive being of primary importance to all, the low ARPUs expected in the rural areas do not provide sufficient motivation for the Service Providers to provide service in these areas.

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Affordability of Services

Though the provisioning cost of telecom services has come down significantly in India, however in terms of purchasing power of individual, these are still high particularly in terms of cost of the end equipments i.e. Cost of handsets, Modem, PC, UPS etc. As a large proportion most of the rural population is having low income, the present cost of telecom services is still prohibiting to them.

Low literacy levels (Relevant mainly for Broadband)

The literacy levels are very low in rural India. No matter how wired or connected a rural community is, no matter GSM or CDMA, WiMax or 3G, broadband or dial-ups are in place, without appropriate literacy to utilize the technology or the value added services that it provides, the connectivity will have no value. Presently, more than 98% of computer work is done in English. Apart from the issue of lack of skills in English, a large percentage of the rural masses do not even have even sufficient reading and writing skill in their own language. In order to help develop the habit of using the opportunities that a Broadband offers, there is a need to develop content that is relevant, usable and understandable by the local people. All the support and incentives offered for rural penetration would be of consequence only if the content provided is relevant and usable. It is therefore, of utmost importance that the contents developed should be in the vernacular language and the application software should largely be menu driven and graphic as far as possible in order to overcome the issue of illiteracy. In absence of these, there will be lack of demand generation in rural areas, leading to a failure of the entire initiative.

Unavailability of locally relevant applications (Relevant mainly for Broadband)

India being a multi diverse country has different requirement from one geographical area to the other area. However, the content being developed at present are meant to be used universally even though it fulfils the requirement of a particular geographic area and not all the whole country.. Therefore unless content developer understands the local requirement and develop customized contents, the demand for tele-communication will not increase. The processing of information and converting it in such a form which become useful to the end user and to transport such information through a reliable, accessible and convenient transportation system are two requirements which can help in generation of demand for telecommunications services and content services. As it is known that demand for telecom services is not a direct demand, but a derived one. Users of telecommunication services do not want to communicate per se, but to get and give information to others. Information is a valuable element, and telecommunication is just the channel through which information is made accessible and exploitable.

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Conclusion

Bharti has a firm commitment to growth and aims to differentiate itself in India's highly competitive communications environment by ensuring customer delight through personalized customer service. Bharti has a solid reputation in India, exemplified by a multitude of awards such as “2005 Indian Mobile Operator of the Year” by Asian MobileNews , and selection of its Airtel brand as India's “Most Preferred Mobile Service” in the CNBC Awaaz consumer awards. The Company is taking every bit of effort to penetrate into the rural area and above analysis shows how it is trying its level best to achieve this. All the efforts are directed towards this.

Results & Benefits Calling a single number from anywhere in India, Bharti wireless and wireline customers

will be able to speak in English, Hindi, or four other regional languages to complete routine transactions and subscribe to new services while the system interacts with them in a natural, conversational manner.

“Virtualization' of the contact center infrastructure, consolidating multiple, geographically dispersed contact centers with separate telephone numbers to a single phone number, and routing calls to available agents regardless of location.

This penetration will help in better connectivity and reduce the distances.