Rural mobile telephony: Show me the money !

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Remember the famous lines from “Jerry Maguire”-” Show me the money”

With the next battles for telecom shifting to the countryside- I guess most of the telco honcho’s are rattling along the same lines…Coz exciting as it may seem, rural cellular telephony doesnt seem “profitable” enough in all its entirety- or maybe I am missing something.

Now, from what I understand of this business- the two major costs are infrastructure (read that as towers etc)  bandwidth- both of which are semi-fixed costs. I say semi-fixed coz- these can be acquired only in batches- you cannot buy tower or bandwidth capacity for one incremental user. Even if the government subsidises the bandwidth in thr rural circles, the tower cost is not expected to come down.

Basic economic principles say that one should aim for demand maximisation in such conditions to ensure maximum utilisation of the installed capacity- assuming the Variable Revenue is more than the Variable Cost. Now given the population density in most of rural India, I can safely assume that there will never be (atleast in the next 5-7 years) enough # of concurrent calls to utilise the tower amp; bandwidth 100%. This is coz most villages do not have enough households (or househlds that can afford a cellphone connection).

Most rural users would not also relate to the “value-added-services” which currently account for a healthy 40% of revenues (in urban circles) and have been the key reason for rising ARPU in a market with reducing call-rates. The uneducated cell user will not really use the SMS/MMS functionality- which is 60% of the VAS revenues. They would infact need voice-activated services where content is also delivered as voice, unless the cell co’s decide to make the rural youth addicted to porn on the handset 🙂

Rural telephony

Add to this the govt’s keen involvement in tarriffs in this sector and one can safely assume that the cell co’s cannot experiment with higher tariffs in the rural circles. So how would these cellular operators make money in the rural circles?

There have been talks about shared infrastructure but even then the shared entity would not break even on its tower cost.I read somewhere that the govt. had experimented with giving a cell connection to the local postman in the villages- to be used by the village residents – something like a truly mobile STD booth. There were clear commissions demarcated for the telco amp; the postman- BUT the service never took off too well. So why are most telco biggies so excited about the rural circle. Well, to be honest- am not sure, but had I been a decision maker at Vodafone, I would have looked at it thus:- Most co’s want to get access to bandwidth at low rates- under the disguise of rural telephony. I would want to hoard on to this bandwidth for future or for roll-out in non-rural areas (see below) – The roll-out would be viable only in the villages of Punjab, Haryana,UP (W) etc ; not really the poorer states of the country.

– The villages that will see the roll-out (in other states) will be the ones close to some decent sized town amp; not the really interior villages. This is coz- in these villages one can expect substantial migratory population with enough disposable income. It could also lead to shared infrastructure between the town amp; the village at a much lower average cost (given that the bandwidth was acquired at the rural circle rate).

– The next lot of villages would be the ones closer to a busy highway or railway line- coz then I could provide roaming connectivity to my existing users and also look at some local customers in the circle.

So there’s some logic in getting to the village first amp; having that critical bandwidth( the only supply-constrained resource in this industry) and wait for the demand to pick up. But what beats me is why is the govt so keen on getting connectivity to the villages?I have been to many a villages during my road-trips and I can confidently say that this will only lead to an additional expense item for the rural households- something which is best avoided. What our villages need are low-cost, efficient and maybe shared resources of more basic kinds- irrigation, sanitation, healthcare,education,microfinance.