Spice Targets Rural Mobile Telephony Market in India

On June 11, 2008, the B.K. Modi controlled Spice Telecom launched a Handset Combo offer called Sabka
Spice in which a handset came bundled with a Spice connection. The Spice S 300 handset, available at Rs
599, was specially designed to make mobile telephony accessible to the rural population in India. "We can
aptly call this 'sabka mobile' (everybody's mobile). It is cost-effective and easy to use and especially made
for the rural population. This combo offer gives economically weaker people a chance to go mobile at an
affordable price," said Subodh Srivastava, Chief Operating Officer, Spice Telecom.1
Spice Telecom, the brand name for Spice Communications Ltd.'s telecom services, operated in the Indian
states of Punjab and Karnataka. The Spice S 300 handset came with a three-year warranty and a choice of
Spice pre-paid and post-paid connections.
The former had one year validity and zero rentals for one year along with a call rate of 50 paise, while the
latter offered attractive local, STD, and roaming call rates.
Industry watchers felt that cellular telephony had come a long way from just making and receiving calls. The
average Indian consumer's phone buying decision was getting increasingly influenced by the multi-
functionality of the handset -the array of operations that it was able to offer.
Indian mobile phone companies, in a bid to expand their market and profit base, had been taking their
special combo packs of cheap handset-cum-life-time pre-paid services to the low-income segment of
society.
Stiff competition among the telecom companies and frequent price wars as the companies went for volumes
at the cost of average revenue per user (ARPU) ensured that more people could afford cellular telephony.
This, coupled with rising incomes levels, had brought mobile phones within the reach of millions of new
customers.
It had also contributed to India becoming one of the fastest growing telecom markets in the world. Besides,
India had overtaken the US to become the #2 in the world's wireless telecommunications network at the
beginning of 20082, with 264.19 million mobile phone connections as of April 2008, next only to China. 3
The number of cell phone subscribers in the country was expected to triple by 2011.4
Though the subscriber base was quite large and India was one of the fastest growing markets in the world,
the market still remained under penetrated. Cellular telephony did not have a strong base in the interior parts
of rural India, due in part, to the fact that the income of the rural population was too meager to afford the
high cost of mobile phones.
Moreover, due to the low population density in rural areas, the cellular service providers had to invest on
building more towers of higher altitudes, and this raised the costs further. Language was another problem
since many of the dialects had no scripts in rural India.
Therefore, the main challenge that lay before the operators had been "to come up with solutions like
simplifying product access, offering customer centric solutions (like songs, music, hello tunes that were
popular), and infrastructure sharing."5
According to experts, this was exactly what Spice had accomplished with its new low-priced S 300 handset.
The handset also offered long battery life, talk time of 3.5 to 4 hours and stand-by time of 250 to 300 a
substitute for LCD.hours; an intelligent audio interface system
With this mechanism, alerts on the mobile were called out, which meant that even those who couldn't read
could use the phone just by following the audio alerts.
The handset also offered a choice of languages including English, Hindi, and Punjabi; a speaker-phone; a
universal charger which meant the phone could be charged using any mobile phone charger; speed dial; and
intelligent LEDs comprising Red LED and Blue LED. Analysts felt that the low price and user-friendliness
of the S 300 would help the company penetrate rural areas which had remained largely unexplored.
The company too had high expectations of its new launch. According to Mukul Khanna, vice president of
Spice Telecom, "We forget that the majority of our population is still in the semi-urban and rural areas, and
they have every right to stay connected too. The teledensity in rural Punjab is around 20 per cent compared
to 80 per cent in the urban areas, hence we are sure that the Sabka Spice offer will create a mobile revolution
as it is an offer that is unparalleled anywhere in the world."6
This breakthrough in rural mobile telephony did not come as a major surprise as the urban areas in which the
telecom companies had till then focused were moving toward saturation. Big players in the sector had been
eyeing rural India as a new area for market expansion.
According to the RNCOS7 Report "Emerging Rural Mobile Market in India" published in November 2007,
the Indian cellular companies had been getting a boost with the fact that the number of mobile users was
expected to cross 500 million by 2010, with an addition of about 5 to 6 million subscribers every month.
The report said that although a significant market in the urban segment remained to be tapped, most of the
cellular operators had been turning toward rural India to broaden their base and reach. Therefore, the real
growth of cellular telephony in India was expected to come from this rural base of the major players in this
sector.
Mobile subscribers in rural India, who accounted for just 20 percent of the Indian mobile subscriber base,
had been forecast to grow at a CAGR of more than 47 percent from 2007 to 2010, according to the RNCOS
report. Rural India was expected to account for around 35-38 percent of the total mobile handset sales by
2010. The leading telecom companies in India were reportedly gearing up to take advantage of this untapped
opportunity at the bottom of the pyramid8 (BoP).9
Analysts felt that a strategy such as the one adopted by Spice Telecom would provide new mobility that
would serve to bridge the economic as well as social divide between urban and rural India. Moreover, in the
industry, mobile users were expected to enjoy the benefits of a no-holds-barred price war in the telecom
sector, where the profit margins were expected to be very thin - driving user growth as well as keeping call
prices down.10

1] http://in.new.yahoo.com/indiaabroad/20080610/r_t_ians_tc_mobile/ttc-spice-launches-handset-at-rs599-26cf430.html
(Retrieved on June 16, 2008).

2] http://in.news.yahoo.com/indiaabroad/20080613/r_t_ians_tc_mobile/ttc-experts-see-huge-advertising-potenti-26cf430.html
(Retrieved on June 16, 2008).

3] "India Subscriber Base Sees Slight Dip in Growth but a Slowdown Seems Unlikely," http://www.itu.int, June 5, 2008.

4] "India Mobile Phone Industry to Triple by 2011," www.eetasia.com, (Retrieved on June 16, 2008).

5] "Emerging Rural Mobile Market in India," www.rncos.com/Report/IM567.html (Retrieved on June 16, 2008).
6] "Get a GSM Phone with Spice Connection @ Rs. 599", www.efytimes.com, June 16, 2008.

7] RNCOS is a market research consulting firm.

8] In economics, the bottom of the pyramid is the largest, but poorest socio-economic group. There are an estimated four billion
people in the world who live on less than US$2 per day (mostly in developing countries) that come under this group. Many
companies, cutting across industries, are developing new business models to target this group.
9] "Telecom Giants Eyeing Rural Market," http://lirneasia.net, March 28, 2007.

10] "India Mobile Phone Industry to Triple by 2011," www.eetasia.com, (Retrieved on June 16, 2008).