Mostly rural users left for telcos to tap now

Telecom firms, which have neglected rural areas so far, may finally have to turn to them for adding new users as growth in the lucrative urban areas slows.

Monthly subscriber additions in the bigger cities have halved over the past year.

On the other hand, Tier III cities, which make up Circle C, have logged the highest minutes of usage (MoU) among all telecom circles at 401, much above the national average of 346.

This shows that rural consumers are talking more on their mobiles compared with their urban counterparts, offering a huge opportunity to operators, Citi analysts Gaurav Malhotra and Arthur Pineda said in a note last week.

The higher usage, they reasoned, was probably due to a lower fixed-line penetration, which makes mobile a primary communication device and boost MoUs.

“Declining tariffs have turned wireless into an increasingly preferred mode of communication in rural areas. Fixed lines in urban areas are increasingly being used for broadband connectivity and a high percentage of enterprise/corporate customers who cannot be substituted with wireless have limited the fall of fixed lines in the urban areas. However, a combination of the above has resulted in higher fixed line disconnections in the rural areas,” the Citi duo said.

Lower wireless penetration translates into better quality subscribers, who bring in better revenues, they said.
Teledensity in rural areas is still low at 60-70% compared with urban areas where it is approaching 100%, giving ample scope for telecom firms to expand.

According to Rajan Matthews, director-general, Cellular Operators Association of India, mobile operators have seen subscriber additions shrink to 5-6 million from around 10-12 million a year ago.

“This points to a lot of churn, with new subscriptions coming down drastically. One reason for the slowdown is that urban areas have reached the tipping point, and so telcos now have to tap rural areas.”

However, obstacles for a major rural expansion remain in the form of fund crunch and regulatory uncertainties.

“It is more difficult to roll out infrastructure in these areas and cash-strapped telcos can’t invest in it at this point due to market uncertainty, in terms of continuation of their operations post the 2G auctions,” said Matthews.

Experts see consolidation setting in, reducing the number of players in the sector to 5-6 from 13 today.

“Telcos now need a new business model. They may have to focus more on cheaper and varied data services with content targeted to rural areas. Local language content and entertainment will be key. E-governance will fill a critical gap. Also, since affordability will be a concern, they will need to offer flexible tariff packs with bundled unlimited data and cheaper handsets,” said Mahesh Uppal, director, Com First (India), a firm dealing with regulatory affairs.

The Citi analysts noted that private players have already taken a lead in rural subscriber additions on account of lower competition in rural areas and are reaping the benefits of first-mover advantage by capturing the best quality subscribers.

“BSNL’s rural subscriber penetration is much lower in comparison with GSM incumbents and only higher than Tata Teleservices and RCom. This is despite BSNL having 900 MHz spectrum across the country, except in Delhi and Mumbai,” they said.

The Citi report also highlighted rising contribution from data revenues, which has boosted CDMA growth from 9-31% due to popularity of data cards. This implies pent-up data demand, which is only now being satisfied due to more attractive data plans, as well as slashing of the prices of dongles, they said.