There is a huge perception gap between the telecom operators and what the rural consumers think about the adoption of mobile telephone, says a recent finding of Accenture. Its report on rural mobile telephony is the result of interviews with senior executives in companies from the telecom ecosystem and around 2,400 consumers, informs Kumar Ranjan, Managing Partner, Telecom practice. “We tried to compare and contrast the views of these executives on needs, barriers and several other parameters, with consumer data collected through focused group discussions and one-on-one interviews with the rural consumers,” he informs during an email interaction with Business Line.
Excerpts from the interview.
Does the report come up with surprises?
Yes, based on our analysis of the data we believe that telecom operators looking to tap into India’s rural population to achieve their next wave of growth need to better understand their customer to develop successful business models to address this market.
Our research strongly suggests that telecom operators need to better understand their customers’ needs both in terms of cost of products and services, buyer values of rural customers, as well as the post-sales support expectations that rural customers have in India. In order to address these needs, operators will have to think beyond the typical business models they have come to rely on in the urban marketplace.
What are the important findings of the report?
Our research suggests that operators have to create and implement business models capable of driving profitable growth through a rural expansion strategy. We surveyed 15 companies spanning the mobile ecosystem and 2,400 rural citizens in India and based on the findings we have concluded that sacrificing short-run revenues in rural markets under the garb of getting an expansive footprint may not be best strategy for mobile operators.
Growing competition in urban markets is not going to allow operators to cross-subsidise their rural forays. Hence arriving at the right business model that generates profits in the short run is the immediate need. It is therefore becoming increasingly important for operators to frequently revisit assumptions and understanding around rural markets as they expand their rural footprint.
We consider this point in time – where the urban expansion is saturating, and rural expansion is starting – a mid-point for a review of some of the key assumptions and understandings that need to be utilised as regards their presence in rural markets.
Some key takeaways are…
* Our report breaks the myth around high-end VAS (value-added services) – Operators need to build revenue in the short-run on voice and on low-end VAS products rather than spending money on creating high-end VAS content requiring them to shell out high fees to content developers.
* Mobile operators should focus on exploring ways of reducing the costs being borne by the customer after being connected – Rural consumers are cost- and value-conscious, and do look for a tariff plan that reduces their call charges. Business models will therefore have to focus on providing various packages of voice/VAS-services that are appealing to rural consumers.
* Post-sales support and services are very important to rural customers – While fixed cost of acquiring a mobile device is important to rural customers, they are equally concerned about after-sales support and service availability. Operators will need to find innovative ways to provide post-sales support for rural customers.
* Our research shows that simplicity continues to be the name of the game – Rural consumers want good, solid but simple service and a device that is easy and cheap to operate. Voice and not VAS continues to top the priority of customers.
* Cost management is going to drive profitability, at least in the short-run – Profitability in low ARPU (average revenue per user) environment prevailing in rural markets is going to be driven by better cost management. A better understanding of customer needs, preferences and barriers will be greatly useful to effectively strategise around reducing marketing and after-sales costs.
Are there strategies that companies can follow for achieving profitability in the longer term?
Yes, essentially, companies need to focus on the broad elements that will facilitate better reach to the rural customer. Telecom operators need to understand customers better, reduce the cost to serve the customer and look at translating the customer into a sustained revenue-generating customer.
So far, companies have been using urban strategies in rural areas which have resulted in limited success. For operators to penetrate in an effective manner they need to be truly ingrained in the rural fabric. This calls for gaining a deeper understanding of the distinctive service needs of rural customers and engaging in more detailed customer segmentation.
Providing an effective after-sales service appropriate to rural populations will help garner trust amongst the customers and ensure profitability in the long run. Operators have to adapt technologies and processes to the rural environment, reduce opex (operating expenditure) as well capex (capital expenditure) related costs through sharing of passive and active infrastructure. Further to that, operators have to leverage an outsourcing strategy to help control costs and develop value-added services that drive adoption.
How different is the rural consumer as compared to the urban counterpart? Does he/she suffer from inhibitions when adopting mobile telephony?
The consumers we spoke with highlighted handset and services costs as key impediments for becoming a mobile customer. Poor reception is another big issue and is one of the key inhibitors to mobile adoption. In addition, the lack of available tariff plans that could meet the needs of consumers by providing better value and justifying the spend was something else consumers cited.
Availability of a proper after sales services also figures on the list of factors that prevent rural consumers from becoming a mobile customer. These expectations differentiate the rural consumer from urban consumer.
What kind of investments do companies need to commit to effectively acquire and retain customers? Do you also foresee cost optimisation through shared services and other such models?
Given the diverse cultural and varying needs of customers across various parts of India, and due to mounting competition, it is getting increasingly difficult for operators to acquire and retain consumers using uniform approaches across various parts of India. The amount that they really need to invest will depend on their unique current situation and will vary from operator to operator.
As ARPUs in the metros are on a decline, companies are using various methods to reach the untapped customers. Some of them are using an influential person from the village community to reach out to a large set of people while others are utilising institutions such as the Industria Technical Institutes (ITI) to create a very good support mechanism. Some of them are even adopting a disruptive collaboration approach by getting into marketing tie-ups with non-telecom companies to reach consumers.
Cost optimisation is very important for companies to continue making profits in the short-term as well as the long-term. Operators must focus on cutting opex-related costs which are essentially concentrated in marketing and after-sales service. There are potential shared services models or outsourcing models that can be created to both reduce and effectively support these functions across rural India, and operators will need to employ such methods to have a profitable rural expansion.
What were the states that were covered in survey of 2,400 rural consumers? Why were these eight states chosen?
While the interviews with senior executives were to understand their views on the key needs and barriers impacting adoption of mobile telephony in rural areas, we also utilised this opportunity to understand how mobile network operators are rethinking key elements of their existing business models while approaching the rural opportunity.
We tried to compare and contrast the views of these executives on needs, barriers and several other parameters with consumer data collected through focused group discussions and one-on-one interviews with more than 2,400 rural consumers. The rural respondents consisted of 802 current mobile customers and 1,634 non-users.
Rural consumers surveyed were from the states of Andhra Pradesh, Bihar, Madhya Pradesh, Maharashtra, Punjab, Uttar Pradesh, Tamil Nadu and West Bengal. As you can see, within each zone we took one state with lower tele density and one with higher tele density.
Your take on consolidation within the industry.
India does have a hypercompetitive mobile industry, but this business activity is similar to other examples of investments when the opportunity size is large. We have all seen the amount of business activity that happened during the Internet bubble. Even going back in time, similar hyperactivity had occurred when railroads were being laid in the US.
Also, while mobile industry is becoming mainstream, what is yet to happen is the information and digital enablement of Indian consumers. Hence, there are still opportunities in the Indian telecom market for players to grow and flourish with the right business models.
As markets mature, consolidation is inevitable, and the same may happen to Indian mobile industry. The timing of such consolidation will be driven by how mobile industry continues to serve the Indian market beyond basic voice services, and builds its business plans that continue to broaden from simple voice services to a rich set of information services.
Is the rural market for telephony in India evolving on lines similar to elsewhere in the world?
Based on what I heard at the global convergence forum that was recently held in New Delhi, India may be leading the way for expansion into the rural regions and there will be lessons other nations can take away from these learnings.
3G - what’s in it for the rural consumer?
3G as technology offers advantages in bandwidth of services, product and services. Innovations using 3G capabilities are also relevant for rural markets, but will need to be developed with a better understanding of the rural customer needs. The uptake of 3G for high-end value added services will take some time even in urban areas and most of the companies will use the additional spectrum to resolve voice issues that they are currently facing.