In India, Rural Poor Are Key To Cellular Firm’s Expansion

Tuesday, September 25, 2007

Heat, High Costs Pose Problems for Towers; Mr. Price’s Innovations GURGAON, India — Don Price got his start in the cellphone industry in the 1980s installing clunky phones in luxury cars in Orlando, Fla. Today, most of his millions of prospective customers don’t have cars, regular electricity or even running water.

The 44-year-old former Navy technician is the director of networks for India’s largest cellular company, Bharti Airtel Ltd., which is trying to blanket this hot, mostly poor country with radio towers. Mr. Price spends his time directing experiments with cold-gel packs and solar panels in an effort to solve a puzzle: How to make service cheap enough for the rural poor, yet profitable? “When you look at cost, it is really a challenge,” he says.

Cellular providers initially tapped developed markets, and when those were saturated, big cities and suburbs in the developing world provided easy growth. But to expand further, cellular companies want to reach hundreds of millions more potential customers who live outside the main population centers.

Almost two billion new subscribers are projected to start using mobile phones in the next five years, and 80% of them live in developing-world markets, according to estimates by Sweden’s Telefon AB L.M. Ericsson. In India alone, more than seven million new cellphone subscribers recently have been signing up each month, bringing the total close to 200 million subscribers in a country of 1.1 billion.

The economics of that growth get dicey. Indian cellular companies charge less than two cents a minute, among the lowest rates in the world, and the average bill is under $10 a month compared with about $50 in the U.S. The more that cellular companies penetrate India’s rural areas, the higher the costs to set up and maintain networks. Yet rural customers, living on an average of less than $2 a day, tend to spend even less on phone service than their wealthier urban counterparts. Only companies that can cut costs while expanding their networks can profitably pursue the untapped market.

India, with most of its people living in villages in the countryside, has become a laboratory for how to make networks work cheaply in areas where hot climates and unreliable electricity drive up costs. As companies figure it out here, their successful experiments are being exported to other developing regions including Africa and Southeast Asia.

The Finnish-German joint venture Nokia Siemens Networks is testing new, small antennae that can be stuck to the roof of a hut to bring service to a tiny village. India’s Essar group is experimenting with liquefied petroleum gas to replace more expensive diesel fuel to run backup generators. Ericsson and India’s Idea Cellular Ltd. are jointly testing some unusual alternative fuels: They have abandoned the idea of using methane “biogas” generated in pits of cow dung and water, and are experimenting with using waste oil from deep fryers at restaurants.

At Bharti, Mr. Price says he has trimmed the cost of running its towers by 10% a year since he joined the company in 2002. Company officials declined to discuss figures but said he had achieved a “healthy reduction.” That’s made it commercially viable for Bharti to add 20,000 towers in the next six months to the 50,000 it operates. Bharti’s competitors are also expanding rapidly. In the U.S., companies need far fewer towers because they operate a more effective frequency that in much of India is reserved for the military. T-Mobile U.S.A. Inc. has 36,700 towers, for instance, and Verizon Wireless only 25,000.

Even more Bharti towers are on the way. “We are trying to get deeper and deeper into India, but we have a long way to go,” Mr. Price says in an interview at Bharti headquarters in a suburb of New Delhi. “We will have 70,000 sites by March 2008, but a couple hundred thousand is what we need.”

Already, Bharti is reaching customers whom it didn’t consider worth pursuing not long ago. In July, Bharti commissioned one of its newest towers in the sleepy village of Madilage, about 300 miles south of Mumbai. To let the villagers know cellular service had arrived, Bharti staged a traditional dance performance on the back of a truck parked under the new tower. About 500 villagers — a fifth of the local population — gathered to watch the show and learn how cellphones work. “Incoming calls are totally free!” announced the Bharti emcee.

Peanut farmer Sandeep Pati, 23 years old, is one of the first subscribers in Madilage, but his investment — he says he spends less than $20 a month on calls — is already paying off. He rents out his tractors to other farmers and his cellphone means he can arrange more rentals quickly with less downtime. “I can run my business even from the field,” says Mr. Pati outside his simple home, where his water buffaloes sleep on the ground floor below his bedroom. “When I had problems with the tractors before, we would just have to leave it where it was for a day, now I can call and get it fixed right away.”

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Source: Wall Street Journal (link opens in a new window)