Conference on Rural Telecom Markets by Tele.net

1. Rural Telephony
Challenges and the Way out !!
September 2009

2. Why connect the disconnected…
Rural connection:
status and market
forces
Impact of
government policy:
balanced scorecard?
Infrastructure sharing
Rationale,
– buzzword for rural Success
drivers and
roll out factors
benefits
Business case:
operator strategy
Barrier and
challenges to
rural roll out
September 2009 Rural Telephony

3. Booming rural India
45% of sales
60% of sales 40% of sales
33% subscribers
50% of policies
35% of sales 33% of deposits
39% of branches
Rural India is contributing significantly to the revenues of some of the
large brands and telecom is slated to be the next big beneficiary.
September 2009 Rural Telephony

4. Demographics: Rural vs. Urban
► 732 million people living across
~630,000 villages ► 296 million people
► Accounts for over 45% of India’s ► Accounts for 55% of India’s
GDP GDP
► Accounts for ~40% of the total ► Has 23.32 mn middle to
consumption pie high income households
► Has 21.16 mn middle to high ► Average household of 4.8
income households persons
► Average household of 5 persons
September 2009 Rural Telephony

5. At a glance
All India Where are we heading - 2012
Subscribers: ~480 million subscribers Subscribers: ~700 million subscribers
Net Adds: Over 14 million additions per Telecom Penetration 60%
month
Rural Tele-density 35% with half the
Telecom Penetration 41.08%
subscriber base coming from the rural sector
Source: TRAI Reports
Capex investments of USD 20 billion
Rural India
Telecom revenues expected to reach USD
Subscribers: ~140 million subscribers 54 billion (FY08: USD 31 billion)
Net Adds: Over 6 million additions per
month MoU to touch close to 530 minutes
Telecom Penetration: 16%
September 2009 Rural Telephony

6. The Road ahead
Revenue Justification Network Reach
• Rural India can pay for mobile services, • Geographical spread means larger investments
but only around $2 per month • Lower penetration indicates lower potential of sharing
• Back haul and transmissions cannot be built over simpler implementation
schemes (e.g. microwave) due to size
Manpower • Poor infrastructure (availability of power) leading to increased downtime and
access (roads etc)
• Skilled manpower to effectively manage
operations without paying extra costs Distribution Reach
• Spread over 600,000 villages, large distribution network is required
• Traditional sales channel may not be viable as the investments of distributor may
not be set off by revenues
Product / Service Reach
• Innovative VAS solutions that appeal to the subscriber base
• May require higher levels of ‘direct’ customer service increasing costs
Searching
PROFITABILITY
September 2009 Rural Telephony

7. Key enablers for demand in rural areas
Service Operations & Service
Distribution Handsets Connectivity
Pricing maintenance Offerings
September 2009 Rural Telephony

8. Key enablers for demand in rural areas
Service Operations & Service
Handsets Connectivity
Pricing maintenance Offerings
Ø Reach to the hinterland remains a
significant challenge for the operators
Ø Innovative models being built such as
Bharti IFFCO tie up
Distribution
Ø Models involving FMCG companies could
act as catalyst to distribution
Ø Cell site infrastructure could be another
source of distribution
September 2009 Rural Telephony

9. Key enablers for demand in rural areas
Service Operations & Service
Distribution Connectivity
Pricing maintenance Offerings
Ø Mobile to transition from a community
device to a household device
Ø Low cost handsets (sub $ 10) still a
necessity to drive growth
Handsets Ø Customized handset with vernacular
content
Ø Customer education
Ø Micro financing
Ø Solar handsets
September 2009 Rural Telephony

10. Key enablers for demand in rural areas
Operations & Service
Distribution Handsets Connectivity
maintenance Offerings
Ø With ARPU of rural subscribers projected
at under Rs. 100, there is still need to drop
tariffs.
Ø Home Zoning – a win-win proposition for all
Service Pricing Ø Total cost of ownership to come down to $2
to $5.
Ø Revisiting high duties and levies
September 2009 Rural Telephony

11. Key enablers for demand in rural areas
Service Service
Distribution Handsets Connectivity
Pricing Offerings
Ø Availability of reliable power supply –
Average Diesel cost as high as Rs. 19000
p.m. per site in Maharashtra as compared
to Rs. 2000 in Mumbai
Operations & Ø Bio-fuels and renewable energy
Maintenance
Ø Windmill and solar based cell sites
Ø Transportation system
September 2009 Rural Telephony

12. Key enablers for demand in rural areas
Service Operations & Service
Distribution Handsets
Pricing maintenance Offerings
Ø Non availability of sufficient back-haul
capacity
Ø Total number of BTS to touch 600,000 by
FY12.
Connectivity Ø Broadband reach through Wimax
Ø Passive Infrastructure Sharing
Ø Intra Circle Roaming
Ø Active Infrastructure sharing
September 2009 Rural Telephony

13. Key enablers for demand in rural areas
Service Operations &
Distribution Handsets Connectivity
Pricing maintenance
Ø Micro Banking
Ø Rural Information Services
Ø Commodity Trading
Service Offerings Ø Primary Health and Education
Ø Regional Entertainment
Ø Location based services
September 2009 Rural Telephony

14. Doing Business in Rural India
Reaching out to the masses and that too with a commercially
viable model is one of the keys to sustain in the rural market
Ø Intra Circle Roaming
Ø Passive Infrastructure Sharing
Ø Disbursement of USOF (Only 25% has been disbursed)
Ø Shift in Metrics to be tracked
September 2009 Rural Telephony

15. Intra Circle Roaming
Ø Own network rollout limited to major
cities/ towns
§ Only capacity sites added over
time
§ Capacity sites will increase and
improve coverage over time
Ø In rural areas intra-circle roaming on
incumbent operator
§ Incumbent has considerably
better coverage than the new
operator
Partner Coverage Operator Coverage
Time-to-Market benefit and CAPEX/ OPEX savings due
to fewer sites
September 2009 Rural Telephony

16. Passive infrastructure sharing
A boost to rural Telephony market
Regulatory Perspective
► In order to promote rural telephony expansion and help reduce roll put
costs, Government issued infrastructure sharing guidelines
► Passive infrastructure sharing coupled with promotions of active infra
sharing has boosted the rural telephony growth in India
Benefits to operators
2
► A boost to achieve the primary
objective of “bridging the urban-rural Benefits to Rural India
divide” promoted by Government Help in reducing the digital divide and aim
3 ►
► Operators able to tap the growth of connecting rural India to urban India
potential in rural market ► Provision of rural specific Value Added
► Justification of cost and effort of 1
Services aimed at promoting growth of
operators looking to expand services in rural India. Services like Primary health
rural telecom market in India and education and Information to farmers
► Reduction in huge CAPEX and sharing to help in achieving overall rural growth
of OPEX costs promoting operators to
expand in rural India
Passive infrastructure sharing would lead to annual
* Source: Ernst & Young analysis
OPEX savings in tune of USD 825 Mn by 2012*
September 2009 Rural Telephony

17. Key Metrics to be tracked
KPI Description
Average Realization rate (ARR) This KPI reflects the average revenue per minute generated by the
operator
Airtime Rate per outgoing minute This is a subset of ARR and reflects the net revenue earned by the
operator for every outgoing minute.
Marginal cost per minute This reflects the service cost or variable cost for every minute of usage of
the network.
Net margin per MoU This KPI will substantially increase with the increase in operations as
economies of scale start to creap in.
Cell site utilization % This KPI can be monitored in terms of erlangs generated over a period of 6
months to understand the utilization trends and help in CAPEX planning.
This can also help the Company in revisiting the home zoning concept
Capital Productivity Ratio Revenue as a proportion of Gross CAPEX will assist the company in
understanding the pay out period for the CAPEX incurred for the project
September 2009 Rural Telephony

18. And finally…
At the beginning of the 20th century, Mahatma Gandhi famously
declared that “the soul of India lives in its villages… and if the
villages perish, India will perish too.”
At the beginning of the 21st century – rural India will push rest of
India right into the next stage of communications revolution!!!
September 2009 Rural Telephony

19. Thank you