A joint project of Tekes & Finpro

Village Communications in India

A new booming market
December 2009
 Village Communications Market in India

Table of contents

1 Introduction......................................................................................................3

2 Telecom BOP in India ......................................................................................3

3 Rural Communication Market ..........................................................................4

4 Public Sector Involment ...................................................................................5

5 Modes of Entry ................................................................................................6

6 E-Segments .....................................................................................................8
7 Conclusion.....................................................................................................12

8 Finpro’s Role .................................................................................................12

Editors

Eeva Nuutinen, Senior Analyst, Finpro Helsinki, tel. +358 40 3433317, eeva.nuutinen@finpro.fi

Ambika Oberoi, Senior Consultant, Finpro India, tel. + 91 11 4609 2400, ambika.oberoi@finpro.fi

Sreehari B. Nambiar, Analyst, Finpro India, tel. +91 44 3988 2040, sreehari.b@finpro.fi

Anna Erkkilä, Senior Consultant, Finpro India, tel. +91 9920 865 889, anna.erkkilä@finpro.fi

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1 Introduction

India reached a major landmark in November 2009 crossing the magic figure of half a billion wireless
connections taking the wireless teledensity to over 43%. Between 15-17 million subscribers are
added every month in what can be called among the fastest growing sectors of the Indian economy.
Over 40% of the next 250 million new subscribers will come from rural areas that account for nearly
70% of the population in India. At the moment around 18% of the rural population has access to the
mobile phone as against 97% for urban areas. The value of rural communication projects in the near
future is about USD 100 billion including both public sector and private business interest.

BOP (Bottom of the Pyramid) and ‘ICT for inclusive growth’ have become the buzzword in India with
both government and private sector increasingly focusing on this segment of population as the
engine of growth.

Finpro with Tekes has studied the current and emerging trends in village communications in order to
understand which sectors offer most interesting business opportunities for the Finnish companies.
The goal of the project was to identify major players, drivers, challenges, regulations, business
models and current technology solutions. Also it was to bring together the Indian opportunities and
the suitable Finnish offering.

2 Telecom BOP in India

Although the per capita purchasing power of the poor is low, but if taken as a whole, this segment
can prove to be a major revenue earner for corporates on sheer volumes. Reports have indicated
that the BOP population are willing and able to pay for goods and services and at times they even
end up paying more than economically stronger sections for essential products and services.
Contrary to popular perception, rural consumers are not only tech savvy but also good users of
value added services offered by mobile operators. For instance, the leading private sector GSM
operator Bharti Airtel has the highest electronic recharge in terms of value coming from the relatively
economically weaker state of Bihar and the highest value added services usage from the state of
Uttar Pradesh, again not as strong in per capita GDP terms as many other regions.

Owing to the high illiteracy rates in rural India, services that are voice-based tend to do better than
text-based services. Diversity of languages and cultures across the country also results in the need
to have multiple languages (most commonly, Hindi, English, Marathi, Punjabi, Bengali, Tamil,
Telegu) inbuilt into applications. Applications that can assist the mostly agrarian population in
employment generation or income supplementation area are highly valued by the rural segment.
Other applications that have potential include – education, healthcare and infotainment. Handset
manufacturers such as Nokia have designed India-specific entry level models that support multiple
languages to cater to the vast rural population.

The need to provide competitively priced products and services to the poor can often lead to
innovations that bolster a company’s market competitiveness and once tested for success, these
products and services can be extended to other emerging markets. Including the poor in business
value chains as producers, consumers, franchisees, distributors etc can also expand supply and
lower risk, at the same time increasing their income. The village entrepreneur model has achieved
considerable success for private sector projects – here, a local villager is imparted training in the use

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of IT tools and dissemination of information on the corporate’s offering. The entrepreneur earns a
commission on services rendered in addition to increased prestige and standing in society.

At the same time, factors such as unsuitable market conditions (business environment for the private
sector), lack of infrastructure, diverse cultural and social needs and an underdeveloped rural
ecosystem often make doing business with the rural segment difficult.

3 Rural Communication Market

Until recently, the rate of growth of telecom penetration in urban India was higher than that in rural
areas of the country. However, subscriber reports show that the highest additions are being seen in
Circles C, B and A (in this order) and lowest in the metros thus going to show that it is the smaller
cities and towns that offer more growth to operators. As on end-October 2009only 26.6% of the
telecom subscribers were from rural India that constitutes 70% of the total population of the country.

Information via mobile, such as weather reports and market prices, has begun to have an impact on
productivity for the agricultural sector. However, it also concludes that other infrastructure
challenges, such as poor roads and lack of refrigerated transport, need to be addressed in parallel in
order for farmers to realise the full potential of access to information via mobile. The Indian wireless
industry, with over 43% penetration, is only second after China in terms of subscribers. Most of this
growth has come from urban India where penetration (fixed line + wireless) is close to 100 per cent,
but in rural markets is around18%. And it's here that the industry sees the largest opportunity for
growth.

In rural India, villagers often consider mobile phones as resources to be shared among family
members and close friends instead of as individual possessions. Studies (source: LIRNEasia) have
found that in approximately 80% of Indian households at the bottom of the pyramid, mobile phones
owned by one member of the family are shared with other family members, nearly 50% share their
mobile phone with non-family members – at times with no cost implication on the user.

Usage of mobile phone usage in India started with urban areas, then expanded to trading
communities in larger villages as they needed to do business with suppliers/customers in cities who
were already using mobile phones, and subsequently, mobile phone usage expanded to the broader
rural community. These days, mobile phones are commonly seen with low and semi-skilled workers
(construction workers, vegetable vendors etc) in urban areas. Mobile phone usage has received a
major fillip with operators offering plans specifically targeted at this segment (low value recharge,
lifetime validity among others), as well as handset manufacturers (such as Nokia, Reliance)
developing ultra low cost handsets priced at less than INR 1000 (less than EUR 15) for the poor.
Leading Indian CDMA (and now GSM) operator Reliance reportedly sold 1 million low cost (INR 777,
EUR 12) handsets within a month of their introduction. Provision of microfinance facilities for
purchase of the first handset will also drive mobile penetration in rural areas.Large national and
multinational companies are focusing increasingly on the BOP market as evidenced by the growing
number of pilot projects, launch of new businesses or extension of product lines in existing
businesses that cater to BOP markets. So far the corporate sector has focused on housing,
agriculture, consumer goods and financial services to meet consumer needs of BOP population.
Experts, however, recognize that the most noticeable rural success story is mobile telephony.

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Market Share of Wireless Service Provides

MTNL; 1,35 % BPL; 0,50 %

Spice; 1,61 %
HFCL; 0,11 %
Aircel; 4,06 % Shyam; 0,04 %

Bharti; 23,74 %
Idea; 9,19 %

Tata; 9,32 %

BSNL; 15,62 % Reliance; 17,54

%

Vodafone; 16,90
%

4 Public Sector Involment

4.1 Rural Infrastructure – USO Fund

Financial support from USOF by DOT (Department of Telecommunication) is to all operators that
offer telecom services in rural regions and open infrastructure for sharing. The scheme, effective
from 1st June 2007 is divided into 2 phases:

First Phase. The scheme will cover 7871 number of infrastructure sites (towers) in 500 districts
spreading over 27 states for provision of mobile services in the specified rural and remote areas,
where there is no existing fixed wireless or mobile coverage.

Second Phase. The scheme will cover the other uncovered areas in the country through mobile
services for which additional 11, 000 towers have been identified by DoT through Infrastructure
Support for Cellular Mobile Services.

4.2 National e-Governance plan

National e-Governance plan started in 2006 with a mission to make all Government services
accessible to the local people, at affordable costs and to realize the basic needs of the common
man. To achieve the vision, a common service delivery platform was created. It consists of 3
elements:

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State Wide Area Network (SWANs) – establishment of intra-government network till the district
headquarters, facilitating the rolling out of citizen centric services. Implementation to be either the
PPP model or the NIC model who would set up and operate for a period of 5 years.

Common Services Centres – aimed at establishing rural internet enabled kiosks, which could
deliver government and private services to the grass root level. This would enable last mile
communication, leveraging of existing telephone exchanges, wireless services and usage of USO
Funds.

State Data Centres (SDCs) – to be established across 29 states and 9 union territories of India to
consolidate, manage and securely host the state level data and applications.

5 Modes of Entry

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5.1 Critical Factors in Success

Village communications projects need to have well-defined strategies focusing on self-sustainability

and specific plans for scaling up along with community involvement right from project development
stage. Research on areas crucial to village economies such as retail, FMCG, telecom also needs to
be undertaken to identify issues of concern to the rural population and design localized solutions. In
the initial phases of the project, handholding by the corporates and involved implementing agencies
is essential to see the project through to fruition.

Scalability depends on right combination of factors such as

Infrastructure

Vision

Research

Community involvement

Strategic partnerships

Connectivity and maintenance issues

Provision of need-based and localized services- local languages, local requirements

Funding issues – international/national funding sources and availability, investment by

private sector players

India is a diverse country; all villages are different with their own specific requirements. Electricity is
a challenge in many villages. All states vary in levels of IT-friendliness, education levels and

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demographics-there are differences even at village level. It makes business sense to target middle
level of the pyramid at least in the beginning as this segment possesses the purchasing power for
products and services offered by corporates. Language and illiteracy factors need to be considered
before developing solutions for the rural market. Content should be locally relevant, have compelling
value, intuitive and easy to use. It is essential to develop regional content. Pricing is very crucial –
pricing of technology, contentas well as services. Private sector companies say they discount their
products by as high as 90% for the rural market. Ensure price supports value of content-important to
look at different pricing models.

Requirements from technology: technology should be affordable, accessible, user-friendly – visually

appealing, should not require high-end equipment or high bandwidth as broadband connectivity in
rural areas is poor. Some of the biggest challenges are: handset affordability, high tariffs, access to
GPRS, customer education/awareness, network limitations, power situation in villages.

6 E-Segments

Until a few years ago, initiatives in rural connectivity were undertaken predominantly by government
organisations, either through various government schemes or under the USO Fund. However, in
recent times, there has been an upsurge in private sector activity in the area – targeting the rural
population is no longer seen as merely a CSR initiative but as a means of generating revenue for
corporates. To this end, many of the private sector driven projects either directly or through indirect
channels aim to increase usage of their products and services among the rural population; hence
these projects are likely to be internally funded. Margins may be low but numbers are huge.

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Other stakeholders in village communication projects are the Non Governmental Organisations
(NGO) that help in extension work - NGOs play a key role in increasing awareness, expanding
outreach and to liaise with the government, both at the Centre and State levels as well as ensure the
necessary buy-in from village Panchayats (group of five persons, usually elderly, that are respected
by villagers and are looked upon to solve disputes at village level).

Content is provided mainly by local organisations – research or academic institutes, government

organisations or private sector content providers. Technology providers, for instance, telecom
operators, partner with these local content providers to package their offering for the rural masses.

All stakeholders need to work in a cohesive manner to ensure the demand side is met through
locally relevant content, packaged in a user-friendly and affordable manner and distributed through
the right channels to reach the target population for mutual benefit.

6.1 E-Learning

Projects can be either government funded or through the open market (private players). Partnership
can be at Central and State government levels. Purchase orders generally come from the state
governments through tendering process whereas the Central Government provides funding under its
various schemes. Public Private Partnership (PPP) is increasingly being looked upon as a
favourable business model.

Before planning market entry, Finnish companies need to consider the following:

Identify target group – teacher training or students; rural, urban, semi-urban, first-time
learners

Identify offering – technology/content/infrastructure or combination of any

Is the technology offered by Finnish companies already present in India? If yes, what is the
Finnish companies’ USP? What is the comparative cost?

India is a very price sensitive market. Volumes are the key.

Finalize business plan – is the objective philanthropic/business oriented?

Customize content for Indian market or create content in India for the market- It may be
more cost-effective to create content locally than customize existing content.

Requirements from the technology

Affordable, accessible

User-friendly – visually appealing

Should not require high-end equipment (should work with low configuration of computers) or
high bandwidth as broadband connectivity in rural areas is poor.

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6.2 E-Healthcare

Health is a state subject which follows a three tier system withprimary health centre catering a group
of villages, secondary level health centre located at district level and medical college hospitals
constitute the tertiary level located in the big cities.

In spite of well networked health care system, access to healthcare in rural areas is far from
satisfactory. In the current scenario, 75% of the qualified consulting doctors practice in urban, 23%
in semi-urban (towns) and only 2% in rural areas where as the vast majority of population live in the
rural areas. Hospital beds/1000 people are 0.10 in rural as compared to 2.2 in urban areas.
Telemedicine has bridged the urban rural divide by taking healthcare to interiors of India. There are
more than 150 telemedicine initiatives today.

Modes of entry

Companies need to liaise both at Central and State Government levels – whereas the Centre plans
and funds projects, states give purchase orders through tendering process.

It is often difficult for foreign companies to enter front-end government projects, the only exception
are big multinationals with independent standing and capability to front end and manage large scale
projects. A good option for Finnish companies is to partner with system integrators who do the
bidding. It can even take upto 2 years for foreign companies to start bidding for govt projects and
build critical mass.

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6.3 E-Agriculture

Typical kiosk for E-agriculture would include a computer with internet connection through phone line
or VSAT connection, powered by solar batteries and housed in the home of a well chosen, educated
and IT trained farmer to serve as the kiosk operator. The investment cost of hardware, pre-
installation preparation and training of kiosk operator would, on average, amount to INR 250,000
(EUR 3600) with annual maintenance costs of INR 50,000 (EUR 740). If such investments are made
by corporates for their own exclusive use, costs can be recovered in the first year, making the
overall business profitable. An internet kiosk in a village catering exclusively to rural farmers run by a
local educated and trained farmer would have the ability to serve 10 villages and 600 farmers in a 5
mile radius.

6.4 M-Banking

There is generally a delay in the deployment of the various m-Commerce activities on a large scale.
With approx 440 million mobile subscribers, the telecom companies are targeting the mobile
commerce market as one of the Value Added Services. Tapping of Rural markets where easy to use
and cheaper technology would prove more beneficial and attractive

Utilization of technologies like NFC

o Research on the same is at the very early phases

o The technology could be useful for enabling mobile wallet services

Standardized network technologies with security features. Could be used for interacting
between banking and telecom network

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Even though a large number of programs have been initiated by the Government, mobile commerce
would require proper attention and guidance from the Reserve Bank of India (RBI) and Telecom
Regulatory Authority of India (TRAI) to make any significant progress in India.

7 Conclusion

Government has planned huge outlay of funds for the upliftment of economically weaker and rural
sections of society including through use of technology by introducing numerous schemes and govt
programs. Many of these schemes are on PPP (Publlic Private Partnership) basis. Corporates too,
have realized that the rural (BOP) population offers tremendous business potential not only in India,
but also Africa and rural populations elsewhere in the world.

Finnish companies, with their technological expertise in e- and m- services and products for focus
areas of agriculture, education, health, banking and governance stand to benefit immensely from
participation in rural projects, which can be led by the govt, or alternatively, by the private sector.
Alternatively, Finnish success stories in Finland or elsewere in the world can be brought to India as
a showcase with the requisite customization and localization undertaken to meet Indian demand.
However, it is very crucial for Finnish companies to understand the local requirements of the target
segment and accordingly customize their offering. Business models of the West may not necessarily
work. India is a diverse country where every village has its own set of challenges and requirements.

India is a market for the long term. Finnish companies need to overcome their fear of entering India:
India is diverse but good local knowledge, team and contacts are useful. It is crucial to identify the
right partners for the right projects and right mode of market entry.

8 Finpro’s Role

The extensive study conducted by Finpro, on behalf of Tekes, has revealed that there is immense
untapped potential offered by rural communications projects in India. In addition to the Government
and local companies, many foreign companies have either entered this space or are proactively
looking at extending their offering to this rapidly growing market. Finnish companies, with their
technological expertise, stand to benefit from active participation in the identified business verticals
of health, education, agriculture, entertainment, banking and information.

Finpro, through its local presence and three offices in India supported by local experts, can offer
Finnish companies the platform to generate business from rural communications projects in India by

Identify the right projects for market entry- projects in the pipeline as well as already existing
projects that are at pilot stage and awaiting commercial launch/scale up.

Define and develop customized value proposition in line with local needs and requirements

Prepare business plans that can be presented to Central and State Governments for project
approval and kick-off of pilots

Identifying the right partners in the value chain – from the public or private sector

The abovementioned activities are already underway for a number of Finnish companies that are
seriously looking at India as a growth market for the future.

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If you need more information, please contact Ambika Oberoi in Finpro India and Eeva Nuutinen,
Finpro Helsinki.

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