By Bharadwaj Ramesh

At first glance, India appears to be a promising market for deploying satellite-based rural telephony solutions. The country is vast; most of its population lives across 5,000,000 scattered villages; teledensity is amongst the lowest in the world; and the costs of deploying wireline solutions are enormous.

However, an in-depth look at deployment of rural telephony in India reveals a market that faces innumerable challenges irrespective of whether the technology used is wireline, GSM, wireless local loop (WLL) or satellite. In fact, the bar is set even higher for satellite due to the nature of the market, high capital costs and the sophisticated nature of the equipment installed.

The Indian government’s goal in promoting the deployment of rural telephony is not to put a phone in every rural home. Rather, the government want to have a village panchayat telephone (VPT) in every village. A VPT is like a public telephone, typically installed at a village store or on the premises of a village “elder.”

There are many challenges facing the rural telephony market in India, as well as in much of the developing world.

First, rural telephony solutions are expensive to install and maintain, requiring heavy up-front investments in capital and man-hours. It costs anywhere from $200 to $500 to lay a copper wire to a village. An ACeS mobile satellite communications based telephony system costs about $400 per installation. A VSAT-based VPT costs about $2,000 before the space segment charge is added. In addition, precautions must be taken regarding equipment safety, and the quality and cost of manpower hired to service the equipment is higher.

Second, the prices that can be charged by the service providers are regulated, leading to lower revenues and longer break-even time frames. Irrespective of the technologies used, the rate that an operator can charge the consumer for a phone call is fixed (2 cents for 3 minutes within 250 kilometers). So, not only is rural telephony expensive to deploy, it does not generate commensurate returns even as the operators deploying them face intense competition in lucrative urban areas and declining telecom rates. Incumbent state-owned telcom operator BSNL’s average revenues per user declined from $149 per year for 2000-2001 to $141 per year for 2001-2002. This was a direct result of an increase in the number of rural lines (with its attendant losses) and the reduction in telecom rates in urban areas.

It is therefore not very surprising to find that the private telecom operators have fulfilled only about 5 per cent of their license quota of rural telephony connections. The remaining quota of connections will be fulfilled by BSNL, which in turn will be compensated by the operators.

It is not adequate to simply wire one village. To enhance the value of the telephone and hence increase usage of the telephone, the surrounding cluster of villages will also have to be wired. This increases the costs of deploying rural telephony.

Over and above these problems generic to rural telephony, satellite-based solutions face the additional barrier of having to compete with cheaper terrestrial technologies like copper, WLL and mobile wireless. BSNL, through a mixture of WLL and copper, has already reached 420,000 villages out of the total of 500,000 villages. Around 60,000 villages are readily within reach of the existing GSM networks (though the operators have not chosen to serve the market). This narrows the market that can be served by satellite-only solutions. Within that market, although ACeS service is cheaper than a VSAT-based solution, ACeS faces regulatory issues in offering services affordably in India.

Frost & Sullivan sees VSAT-based rural telephony as offering the best option if one looks beyond offering plain-vanilla telephony and focuses on ushering in an era of connectivity.

It is instructive to look at the activities of n-logue Communications, a Chennai, India-based company that offers Internet connections using WLL technology developed by the Indian Institute of Technology. The technology, called the cor-DECT, enables an Internet connection at 35 Kbps within an area of about 25 kilometers, along with the ability to make simultaneous phone calls. N-logue offers data and value-added services through a village kiosk operated by a local village entrepreneur. The kiosk operator generates money through both voice service and data services like video e-mail, telemedicine and access to government services online. In some places, the kiosk operator has become a dealer for companies marketing to the rural consumer — selling bicycles, insurance, fertilizers, etc. Over 300 n-logue kiosks are operating across villages in the southern India.

Looking into the future, it would appear that VSAT-based solutions will become more and more attractive for Indian villages.

For one, VSATs are scalable. A VSAT can handle anything from low-bandwidth voice calls to high-bandwidth images. No other technology reaching the rural market can do that.

Secondly, a single VSAT can support multiple connections. Thus, a VSAT installed in a village kiosk can be used to support not just a kiosk, but also phone lines reaching into villagers’ homes — this alters the economics of rural telephony as the fixed cost of the VSAT is spread over multiple sources of revenue.

Third, depending on whether the Indian government relaxes restrictions on direct-to-home service, we could see the introduction of small satellite antennas that can be used to receive TV signals and also offer broadband Internet access and voice-over-IP, further driving penetration and improving the economics of the business.

All this ties into the long-term vision of the Indian Department of Telecommunications, which wants to turn today’s VPTs into “information kiosks.” What is needed, though, is a strong vision from the government that translates into concrete action on the ground. This will mean making it easier for ACeS to enter the market, lowering costs of deployment by removing duties levied on VSATs used for rural telephony, subsidising space segment charges, providing an assured electrical supply, working with villages to employ and train local villagers to operate kiosks and partnering with companies targeting the rural market.

Bharadwaj Ramesh is an industry analyst covering satellite communications for Frost & Sullivan, based in Chennai, India. He can be reached at [email protected]