How Can Service Providers Help Government Attain 100% Rural Teledensity?

Indian telecom sector has made considerable progress in the last few years. The country has achieved overall teledensity of 91.9% at the end of December 2017 as per TRAI data. Though this is commendable, it is also time to admit that this figure is deceptive. While urban India boasts of an overall teledensity (wireline + wireless) of 168%, it is only 56.6% in rural India.

The upcoming National Telecom Policy 2018 recognizes and hopes to rectify this. The policy aims to achieve 100% teledensity by 2022, but the target is a tough one given the number of constraints and challenges.

Tough time for the sector

Telecom companies are not very keen on expanding network infrastructure in the rural market because of the high cost of network deployment and management.

The Indian telecom sector itself is going through a difficult phase. According to the industry body Cellular Operators Association of India (COAI), the industry has already invested over Rs 9 lakh crore till date but is now saddled with a debt of over Rs 4.5 lakh crore.

Besides, there is a cost attached to fully connect and digitally empower the country’s population -- the COAI estimates the cost at more than Rs 2-3 lakh crore over the next couple of years.

Moreover, the Average Revenue Per Unit (ARPU) in rural markets like Bihar (Rs 60) and West Bengal (Rs 53), and Orissa (Rs 58) continues to remain much below the national average of Rs 78 (for October-December 2017). Therefore, for most operators, it is commercially less viable an option to spend heavily on an expansion of rural infrastructure.

The traditional high-capex approach adopted in the urban areas is unlikely to bear fruit in the rural segment because the return on investment is spread over an extended period.

A new rural strategy

The telecom sector now needs to look beyond the traditional ways to expand in the mostly untapped rural market. Innovative but cost-effective technology solutions are the need of the hour to have a sustainable business model in the rural markets. Finding a viable business model in the rural market is crucial for the future growth as margins from urban operations are falling because of higher teledensity and stiff competition.

The new Mobile Virtual network operators (VNOs) policy further encourages service providers to expand in the country’s hinterland. Once the network is running in the rural areas, the telcos can hand over running the business to MVNOs ensuring additional revenue stream.

The key to success in the rural market continues to be a high volume– low-cost approach. The question though is how to implement this strategy. The industry also has realized that the rural customer is as data hungry as the urban customer (the initial spurt in data consumption in rural areas after the launch of Reliance Jio is a testimony to this), and therefore, they need to provide the latest high-speed 4G network in the rural market as well.

The challenge for the industry, therefore, is to adopt technologies and methods, which help in rural expansion at a minimal cost.

The low-cost approach

The Indian industry needs to explore technologies, like cloud, virtualization and other software-driven strategies to effectively reduce the cost of equipment and infrastructure.

Virtualization is fast becoming a popular method of reducing infrastructure cost for the telecom industry. Virtualization, which means creating virtual hardware platforms and computer networks, helps in reducing the cost of equipment, hardware and saves energy bills.

Servers use a very low physical server capacity. Virtualization increases the capacity utilization of servers by as much as 80-85% in some cases against 10-15%. Virtualization not only makes them more energy efficient but also saves space and reduces the cost of equipment. What is perhaps the biggest selling point of virtualization is that it makes the network more agile and flexible, thus enabling the service providers to quickly respond the competition or changing market dynamics.

The Indian telecom sector is yet to adopt virtualization at a pace that it should have. However, with dynamics in the industry changing and competition getting tougher, virtualization is the way forward for the telecom industry. It will also help in expansion in the rural segment as virtualization ensures faster and cost effective network deployment.

The service providers can also use 2G infrastructure to expand coverage in the rural market. A virtualized 2G network will enable faster deployment while at the same time the service provider will be able to move the subscribers to 4G whenever the market is ready.

Globally, service providers, such as Telefonica and British Telecom, have used this approach to address the requirements of communities in difficult to reach areas. It is time for the Indian telcos to also leverage from this concept to bridge the digital divide.

Rural India has a vast untapped market for the telecom companies, but cash-strapped telcos need to change their approach and use cloud and virtualization based approach to expand in these markets. The objective of the National Telecom Policy 2018 can be met only when the service providers leverage virtualization to bring down the cost of network deployment and management. It is also important for them to taste commercial success by expanding their footprints in the rural market.

Rajesh Mishra
Founder, President and CTO - Parallel Wireless