“Future of VAS is in rural market” is a repeated and much heard statement which sounds convincing enough. But can this influence be more out of benevolence than anything else?

This “assumption”, besides feel good factor, is based on some of the facts like:
1. India lives in rural areas. out of its more than a billion population 72.2% population lives in rural area (2001 census)
2. Urban market has started to saturate ( average urban tele-density is 65 with more than half of the urban areas having tele-density above 70 ; urban areas of Punjab and Chennai already have a tele-density above 100: TRAI, March 2008);
3. Network expansion in rural areas ( almost all the major Telcos have declared their plans to invest hugely in network expansion- read rural India)
4. Increasing income of rural India
Sounds more convincing now….right?
But is it truly true? And how long will it take for this market to overcome urban market? And more importantly how big is this opportunity ?

Some hard facts which may help in answering these questions are :

1. Current Rural tele-density is 9.21 ( all India average is 25: source: TRAI, March 08)
2. Telephone network reach in rural area is already roughly around 80%*
3. Per capita income of rural India is Rs.7000 per annum (ASSOCHAM estimate for 2007-08). All India average is 24,321( CSO estimate for 2007-08)

To further understand this rural market lets to also look at some “not so VAS” facts from another from another “non-essential” industry -FMCG (Fast Moving Consumer Goods).

According to ASSOCHAM, “current FMCG market penetration is about 2% and even more popular products like toothpaste, skin and hair wash, talcum, powder, branded Atta, dish wash, instant coffee, R&G coffee, ketchups, deodorants, jams etc. which currently have less than 30% penetration out of 100 people in rural and semi-urban areas” (ASSOCHAM 2006 press release).

What! 70% people in rural India do not use toothpaste, ketchups, jam…

Forget ketchups… 26% don’t get a have a full meal on a daily basis!

Phew! That sure put things in prespective. Now, let’s get back to the Telecom and look at the ARPU (average revenue per user) of the telephone user: latest data shows it’s around Rs. 290 per month which means if an average rural person buys a phone s/he has to shell out more than half of his/her income! (As mentioned earlier it’s Rs.583 per month for rural India or Rs.7000 per annum).

This explains the low telephone density of 9.21 in circa 2008 despite having a telecom network covering more than 80% rural area and not to forget the “low cost” handsets and “affordable life time” tariffs (remember toothpaste next time you are making a rural tariff plan).

We probably need to remind ourselves that this definitely is a market but with very little (or nothing at all) to spend. So the only thing that may work in this market will be – more value added services for less money.