opportunities for mobile telephone operators in rural areas ...

Roland Berger Strategy Consultants
content
Fresh thinking for decision makers
Opportunities for mobile
telephone operators in
rural areas | Customers
in the countryside are different
| They need unique
offerings | Wireless network
operators have to
rethink their approach |
Suitable strategies are
already available
December 2011

SuCCESS IN RuRal MaRKETS:
NEW CuSTOMERS FOR
TElECOMMuNICaTION BuSINESSES
Large population in rural areas * :
India ≈ 800 m
China ≈ 865 m
-
Net subscriber additions in
rural areas 2007-2010 * :
India ≈ 107 m
China ≈ 128 m
x
Desire for
mobile
phones:
90%
=
Potential customers:
≈ 1.29 bn
* examples

content Rural Markets
Sometime in the mid-1980s, the first mobile phones appeared in Hollywood films, as a status
symbol for the rich and powerful. Gone are those days. Today mobile communication is so
commonplace that the markets of the industrialized world are thought to have reached
saturation point. Mobility players find it hard to achieve even meager growth rates in these
markets. Things look totally different in emerging and developing countries, where mobile
phones are less widespread.
But this is changing fast. The demand for mobile communication in these countries is high, as
the growth rates in several key emerging markets show (Egypt, Brazil, China, India, Indonesia,
Nigeria, Pakistan and Thailand). Here, 570 million new mobile phone subscribers were added
between 2007 and 2010. However, these new customers are not all city dwellers, as you might
think. There is considerable demand for mobile communication among the rural population
too. Most of the 570 million new customers, 303 million to be exact, live in rural areas. And the
growth continues: Well over 90% of those currently without a mobile phone want one.
"Metropolitan" business models do not work in the countryside
Unfortunately, this demand does not automatically translate into big profits. Product design,
sales and marketing models established in the cities cannot simply be transferred to the
countryside. Equipping sparsely populated areas with the technical infrastructure needed for
comprehensive mobile coverage does not come cheap: in fact, the costs increase as one penetrates
more remote markets. At the same time, since the rural population has a low average
income, the Average Revenue Per User (ARPU) tends to reduce with remoteness.
On a hayride
PROFIT Rural
PROFIT City
Mobile telephone operators should also take the path
to the countryside if they look out for new customers.
In the long run, ignoring the rural population's need for mobile communication for the above
reasons is not a good idea. It would leave the field wide open to competitors. And since customer
growth in rural areas is at least as fast as that in urban areas, significant market share
would be lost. Relatively low ARPU among new customers can be compensated for by high
volumes. Not to mention the additional image boost.
Among companies who have entered the rural market, the successful ones are those who see
their rural customers as a separate customer group that has to be addressed with specially
tailored concepts. Companies who simply transfer the concepts they have established in big
cities to the countryside, are destined to fail.
Taking the network to the countryside
Expanding a network in rural regions using urban quality yardsticks for network coverage and
speech quality is expensive and complicated. A strategy of expanding cheaply and quickly with
moderate quality of network coverage is more promising. This may reduce quality, but quality
can be improved once there are enough customers spending enough money. The opposite
strategy of a high-quality but slow and expensive network expansion not only reduces financial

Roland Berger Strategy Consultants
capacity for other investments but leaves a company vulnerable to faster competitors. Collaborative
approaches at an industry-level or with governmental support are also being explored,
especially in African countries.
Tailoring the product to rural customer segments
It is also important to face the fact that not all rural consumers are the same. Farmers,
students, rural workers or rural business owners have, for example, different income levels,
internet usage, and different communications habits and needs. One product does not fit all.
Companies have to understand that rural customers need to be segmented and their value
proposition drivers understood. This consumer insight should be used to design tailored products
and services for rural consumers.
Small is beautiful
MAKE
IT
SMALL
To offer rural customers smaller packages proved to
be a successful business model, as other companies
found out.
Affordability is key ...
In general, the average income of rural customer target groups is much lower than in big cities.
Differences of a few cents can mean a lot to them – affordability is essential. Other industries
can provide ideas for new approaches. Food corporation Nestlé, for example, reduced the size
of coffee and milk powder packages and sold them at a lower price – successfully, as the sales
figures show. Nestlé's Bono cookies are an excellent example: The packet size was reduced
from 200 to 140 grams, and sales rose 40% as a result. Consumer products giant Procter &
Gamble had a similar experience when it reduced the size of toothpaste tubes and detergent
sachets.
CavinKare, a producer of beauty and personal care products, took a slightly different route. The
company identified how much local customers in India would be willing to pay for shampoo –
and created the appropriate package size. It paid off: The company gained a 40% market share.
Taking a page from this playbook, an Asian mobile phone provider applied this model: It modified
its pay-as-you-go contract to allow users a minimum balance of just USD 5 cents – with
great success.
All these examples follow the same idea: Successful companies often reduce entry barriers for
their main target group by tailoring the product to the pocket of the customer. This helps the
product to penetrate the market and built a customer habit, which could lead to lasting loyalty
over time.
... but value-adds are still possible
Besides the very price-sensitive target group, the rural population also consists of segments
who aren't convinced by cheapest offers alone. Here, another strategy could be promising: To
link the core product – in our case, country dwellers' desire for mobile communication – with
other services relevant to the target group. China Mobile, for example, developed an offering
for the target group of farmers that provides a subscription to farming-related information on
prices and price trends in addition to their mobile phone contract.
Using this and similar other value-added approaches, China Mobile gained nearly 13% new
customers in 2010, totaling to 523 million users. Revenue from value-added business reached
RMB 151.4 billion (USD 63.6 billion), representing an annual growth rate of more than 15% and
accounting for roughly 31% of China Mobile Group's operating venue. China Mobile uses a cen-

content Rural Markets
tral platform, but localized the operation in delivering content on a province or region basis. The
key of success also lies in cooperation, e.g. the company formed a relationship with individual
specialists like a card manufacturer, who created a menu embedded card.
Other add-on services are possible, in the realm of healthcare, for example: In emerging and
developing countries there is a lack of all-around healthcare provision for most of the rural
population. The next medical service station is often far away. At the same time, many widespread
diseases such as tuberculosis or HIV require regular care and intensive monitoring
by medical professionals. A good use of mobile phone technology would be to query certain
key parameters with the patient and transmit them digitally to the doctor in charge. With this,
specialist advice is possible even at remote rural clinics and non-frequent visits to the doctor
can be compensated partially at least.
Access granted
554
m
539
m
522
m
570
m
584
m
Another promising value-added area for mobile operators is mobile banking. In sub-Saharan
Africa, for example, over 470 million people earn less than the equivalent of USD 10 a day – but
together, they would be able to deposit almost EUR 60 billion annually, yet only one in five has
a bank account at all. By contrast, even the lowest earners in Africa usually have a mobile phone.
In other emerging and developing countries there is a similar situation: In India, a Roland Berger
case study found that 230 million cellphone users currently make little or no use of banking services.
This number is likely to increase in the years ahead since the population is growing faster
than the banks' new customer business. So why not leverage the appeal of mobile telephony to
link banking services and mobile communication Of course, the banks would benefit from such
a scheme, but so would mobile phone companies. They could stand out from their competitors
by offering these value-added services and expand their customer base. Several banks already
started to tie up with the telecom-companies to roll out their businesses in rural areas.
Reaching out to remote customers – economically
Alongside network expansion and product design, the right sales setup is crucial for successfully
winning new customers in the countryside. Revenues at rural points of sale tend to be a
lot lower than in cities, with comparatively high cost to serve the channels. The traditional topdown
sales hierarchy of one national distributor, several regional distributors and local retailers
does not always work in the rural areas.
4 Q
2009
1 Q
2010
2 Q
2010
China Mobile's subscription uptake has increased
steadily quarter after quarter, after providing
affordable value-added services to rural users.
Further information
3 Q
2010
4 Q
2010
One successful strategy is to set up rural distributors alongside the regional urban distributors,
with shared costs and infrastructure. These rural distributors know the local market well
and can handle it via micro-distributors, which are either small town retailers or semi-urban/
rural retailers. Many companies shy away from this approach because they fear reduced visibility
and control in the supply chain, and also diminished ability to "push" material into chain.
However, these challenges can be addressed with an active sales management approach.
Following this idea consequently results in down-to-earth solutions convincing by their simplicity:
Stockists in rural areas can use cycles and even boats for their distribution and therefore
overcome infrastructural contraints – and by doing so, reach customers in remote areas or
tiny settlements, for which even a distribution via sub-trucks or vans would be too elaborate.
Altogether, a cheap and quick-to-establish way to service new customers in rural areas. On the
Roland Berger Strategy Consultants has developed
strategies for the banking sector in sub-Saharan
Africa.

Roland Berger Strategy Consultants
downside, these solutions are not scalable, as there is no network of consolidated service
providers.
Expanding existing sales partnerships or establishing new cooperations with bigger companies
is faster and less capital-intensive. Finally, there is the possibility to use existing mass
distribution systems like PDS and post services. The advantage lies within its great reach and
its established, trusted channel. But it comes at the expense of less control over a standardized
brand image and sometimes inertia toward the distribution of new products – and is thus more
suitable for regions with lower customer potential.
Spread the product
Companies who are successful in rural areas use
different distribution channels – as long as these are
cheap and quick to establish.
Consumer goods-companies leveraged innovative partnerships to drive distribution reach and
fundamentally alter distribution economics. Some of them outsourced last mile distribution
by training key influencers from each neighborhood in areas where conventional distribution
networks can not economically reach.
Explaining the value added
A small-scale but focused sales approach also helps companies demonstrate to potential
customers the value added of their products. Nokia, for example, deploys "salesmobiles" in
emerging and developing countries – small vans in which sales reps tour the country promoting
the latest services and add-on offerings for the "farmers of today". The Korean white goods
manufacturer LG takes a similar approach to explain its microwave product group, including
cooking demonstrations in a small van. And Unilever's Shakti program in India collaborates
with local female entrepreneurs who advise their clientele on health and hygiene matters as
well as selling them the appropriate products. Local sales representatives are able to eliminate
suspicion, answer questions and demonstrate the product live – benefits that not every store
can offer. This small-scale channel means that rural sales will never be as cheap as in cities. But
involvement specially tailored to the region and target group can certainly be worthwhile, as it
also boosts the brand.
Consumer Education in general helps to grow business. To explain the benefits of cellular mobility
to non-users reaches out to new potential. Finally, technology gives mobile operators opportunities
to create inexpensive sale models, for example by launching e-recharge systems to top
up credit on a pay-as-you-go phone – but this technology of course also needs to be explained.

content Rural Markets
Good things come in threes
Success factors for rural business
The right way for a mobile operator to do business in rural areas depends partly on which
target groups have the most customer potential, which markets competitors already occupy
and which sales formats can be used. Roland Berger has identified three key factors
based on its experience from various customer projects:
1. Product design: The product must be tailored to the target group's needs, whether in
terms of entry-level prices or regular costs. The product could also be made more appealing
through add-on services (e.g. mobile banking). Simply transferring popular metropolitan
products to the countryside will not work.
2. Sales and distribution: Rural sales activities need to be organized on a smaller scale
and with more focus. Only then can they meet the rural population's needs and expectations.
In some cases, partnerships may play a key role, possibly involving a loss of control
which needs to be managed. Partnerships can also be used to leverage scale and
expand reach. Innovations in distribution models will fundamentally reduce cost and
improve effectiveness.
Brand and marketing
Product design
Sales and distribution
Roland Berger Strategy Consultants identified three
key factors for success in rural markets.
3. Brand and marketing: Only if the benefits of the offering and possible add-on services
are clear will rural customers be won over. Rural customers value the experience of local
contact people such as their local shopkeeper. It is essential to think beyond the traditional
and use non-traditional and local media effectively.
For mobile operators, it's about more than only growth beyond the metropolitan areas. The
enlargement of customer base also strengthens the company as a whole – and therefore
also in the cities. The introduction of new distribution models enhances know-how within
the company. And new collaboration models could also prove as valuable for the business
in metropolitan areas. To master the above mentioned challenges therefore are a task for
all market participants.
IF YOU HAVE ANY QUESTIONS, PLEASE FEEL
FREE TO CONTACT US:
Chandan Joshi, Partner
+65 6622 – 5480
chandan.joshi@rolandberger.com
Thomas Klotz, Partner
+65 6622 – 5478
thomas_klotz@sg.rolandberger.com
think:act CONTENT
Publisher:
Prof. Dr. Burkhard Schwenker, Dr. Martin C. Wittig
Project management: Dr. Katherine Nölling
Roland Berger Strategy Consultants GmbH
Am Sandtorkai 41
20457 Hamburg
+49 40 37631 – 4421
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