India’s urban-rural telecom gap?

Posted on March 9, 2009  /  0 Comments

An AFP story published today talks about the Indian boom in mobile connections, despite all round economic gloom: a record 15m new connections were added in India in January 2009 according to the article.

India’s “mobile revolution” is still mainly seen in the cities, but the real prize for phone companies is the vast rural market, where nearly 70 percent of the 1.1-billion-strong population live, analysts say.

By the end of January, 34.5 percent of the population owned a telephone, Telecom Regulatory Authority of India said.

But those figures distort the picture, with 66 percent of people in cities owning a phone compared to around nine percent in rural areas, says Frost & Sullivan.

“The next addition of subscribers will come from rural regions,” said consultant Trivedi. The government calls the rural market the “next accelerator” for mobile growth.

LIRNEasia’s findings from a recent 3,000 sample-strong demand side study of telecom show that in fact at the bottom of the pyramid (BOP) between September 2007 and 2008, India’s rural BOP actually did add more connections than their urban counterparts, with 27% of rural BOP mobile owners (or 11% of all rural BOP teleusers) getting connected versus 19% of urban BOP mobile owners (8% of all urban BOP teleusers) over the period. Adding in fixed phones will increase the numbers marginally.

An important issue in how “urban” versus “rural” connections are counted has become a topic of interest recently. A separate article also published today, in The Hindu (Chennai online edition) highlights an important fact in counting urban and rural connections:  supply-side numbers count phones at the point where they are purchased, not where they are actually used. So a mobile (which is exactly that) purchased in the city may very well be actually used in the surrounding rural areas.

Hence, the statement in the AFP article, that “66 percent of people in cities owning a phone compared to around nine percent in rural areas,” quoting Frost & Sullivan may be reflective of the supply-side situation, not reality. According to LIRNEasia’s demand-side calculations at the BOP (note, not at the overall population level), urban BOP phone penetration (mobile + fixed) was seen to be 47% while rural BOP phone penetration was at 44%. If one was to look at the overall population numbers also from the demand side, the urban-rural gap may be wider than at the BOP-only level, however, it may not be as high as most supply-side numbers present it to be.

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