Telecom Companies to expand in Rural Areas

Far from being unwanted, uneconomical and unviable, offering telephone services in rural India have suddenly become an attractive business proposition for private telecom firms.

The aggressive bids received by the Government for its rural mobile project under the Universal Services Obligation fund on Wednesday point to the fact that telecom service providers and infrastructure providers are falling over each other to be the first one to go where no operator has gone before, something that only state-owned BSNL was mandated to do a few years ago.

But now private companies are willing to roll out infrastructure in rural areas at nearly 80 per cent cheaper rates than the subsidy benchmarked by the Government.

For instance, while the Department of Telecom had set a benchmark of Rs 4.02 lakh a year for each tower to be set up in Andhra Pradesh's East Godavari district, it has got bids for as low as Rs 2.4 lakh from the likes of Reliance Infrastructure and GTL Infrastructure.

In Bihar, while DoT had set a subsidy benchmark of Rs 4.2 lakh per tower a year in places like Begusarai and Darbhanga, operators are willing to set up units for as low as Rs 1.7 lakh.

And these rates, submitted by various companies during the first round of bidding on Wednesday, are set to fall even further as the multi-stage bidding process moves into the second round of competitive bidding.

For the services part of the project, cellular operators have quoted zero amount which means they are willing to offer their services without any subsidy support from the Government. Market analysts point out that stiff competition in the cellular market, which has as many as seven operators, and a saturated urban market is forcing companies to look for subscribers in the rural areas. This is good news for the 60 per cent of the country which is yet to be covered by telecom services.

"Operators are now looking to roll out services in the nook and corners of the country. There is a huge untapped market there and operators now have a rural focused rollout plan," said Mr T.V. Ramachandran, Director-General, Cellular Operators Association of India.

While tele-density in urban areas is close to 30 per cent, it is only about 2 per cent in rural areas. Operators including Airtel, Reliance Communications and Idea Cellular have earmarked a significant part of their investments this year for roll out in rural areas. Contrast this to a few years ago when operators were found defaulting on their village telephony commitments and had to pay hefty fines to the Government for not fulfilling their rollout obligations.