Atanu Dey On India's Development

Telecommunications and Rural India

India’s telecommunications infrastructure story is remarkable in many respects. It used to be a public sector monopoly not too long ago. Waiting time was measured in years and the service was as poor as the price was high. Things changed rapidly after the sector was liberalized and the private sector was allowed to provide telephone services. As there was practically no wire-line phone system to speak of in the early 90s — around 20 million phone lines for a population close to a billion — the legacy burden was entirely missing. Cellular technology effectively allowed India to leapfrog the older twisted wire landline system. Vigorous competition brought prices that are among the cheapest in the world.

By the August of this year, there are around 330 million telephone connections in India for an overall teledensity of around 30. The breakup is: 290 million cell phone subscribers and around 40 million wireline subscribers. Wireline subscriber base is actually shrinking. Of the wireline phones, around 11 million are in rural India, all of which is provided by the public sector operator BSNL.

I don’t have the rural versus urban breakup of cell phones. I will update this post when I have figures. But I guess that the breakup would be 70:30 in favor of urban areas. This is the exact opposite of the population distribution, which is 70:30 in favor of rural areas. In short, the teledensity of urban India is much higher in urban areas. This is going to change.

The growth of rural teledensity is natural because the urban area is approaching saturation. As it always happens with consumer technology, it trickles down: first the urban rich, then the urban not-rich, then the rural rich and finally the rest of the heap. This happens because the early adopters have to pay a higher price which reflects higher costs. As the technology matures, it gets cheaper. Also, operators learn by doing and thus reduce operating costs. The later adopters pay a lower price but have to wait for a bit.

The problem with India rural areas is that they are not the most suited for adopting technology. The bare minimum is reliable electrical power. Which, in their case, they don’t have. Actually, not to put too fine a point on that, I live in a major urban area in India, Pune. It is fairly well-known as a high tech center of India. The last few days I have seen power go off and on every couple of hours. The power gods are not very happy, it would seem, with Pune.

We don’t usually associate telecommunications with power. But cellular towers don’t work on love and fresh air (and fresh air is not something that you can take for granted, anyway.) They require power and in areas where the grid is unreliable, you have to spend fairly large sums on diesel generator sets. That, among others, is a major problem in rural India. The cost of energy accounts for a third of the operating costs of a cellular network, I am told. Higher costs means higher prices. So what’s to be done.

I am a firm believer in the market. The market figures out a solution. Recently I came across a firm that has developed cellular technology that is miserly in the use of electricity. It does not require grid and can do without diesel generator sets. It is VNL, a Swedish Indian company. As they claim, “VNL’s WorldGSM™ is the industry’s first microtelecom solution; a complete re-engineering of GSM for the billions of low-income, rural users.”

That is impressive. I spoke with Pär Almqvist of VNL recently. He has a blog with more details. Take a look.

Update 25th Oct: Gaurav reports that as of June 2008, according to TRAI, 71 million of the total 287 million mobile subscribers are in rural India. That means the subscribers rural:urban::25:74 while the population distribution is 70:30. My guess was not bad.

Related post: Teledensity and GDP Growth (March 2006).

The Proposed 3-G Spectrum Auction (September 2008).