In emerging countries mobile operators are now struggling in markets with relatively less room for growth and fiercer competition, with the result that margins are starting to suffer. There is growth potential in serving the large populations in rural areas, but operators need to change in order to achieve this.

While investors in developed countries are still seeing mobile operators in emerging countries as the solution for their revenue growth targets, these markets are becoming increasingly competitive and sophisticated. Low mobile penetration nationally hides a striking difference of service availability between urban centres and rural areas. To date, local mobile operators have focused on deploying infrastructure in the cities, since population density drops abruptly outside urban centres. However, these operators are now looking to expand network coverage to new areas,  but reaching out to those rural areas proves to be a difficult business case.

Nigeria is a good example, where more than 60% of the population lives outside of the largest 1000 cities. To reach mobile penetration of more than 70% means deploying tens of thousands of additional base stations to reach villages with around 500 inhabitants.

Achieving network coverage at a reasonable cost relative to the income potential is the challenge, but at least local governments and mobile operators now seem to be working towards a similar goal. In September, the Broadband Commission for Development received a high level of visibility as it focused the attention of many players, governments, international organisations (such as UN agency ITU), investors and personalities, on the need to provide services to un-served populations. Further than universal service funds, adapted services (building on the existing service portfolio) may be what tips the balance for the business case for rural expansion.

Rural areas are characterised by a low population density, populations with lower income than in cities, security issues, a lack of transportation infrastructure, few distribution outlets (for SIM cards, handsets, accessories, maintenance), lack of access to electricity (for both base stations and handset recharge points) and large geographies to cover. Traditionally, satellite operators have been the only providers in these areas, and only the richer corporate personnel have enjoyed connectivity for voice and data services.  Recognising this, countries are finding ways of making it possible: for example, the government of Mozambique recently required two mobile operators to investigate how they could share their radio access infrastructure. And in India, rural expansion has been facilitated by the Indian Government through network and tower sharing, partially funded by the implementation of a 3% tax for a universal service fund. Similarly, CMDA operators in Nigeria are lobbying to be allowed to share infrastructure to reduce costs.

To support this change, companies which specialise in tower infrastructure and maintenance outsourcing are increasingly active in Africa. Bharti, for example, is said to be looking at offloading the mobile tower portfolio it recently bought from Zain Africa, and has contracted IBM to upgrade its IT network to enable additional services focused on rural populations. The introduction of new services adapted to rural context is key to service adoption.

Mobile operators need to achieve two key objectives: 

• Identify technologies and models that reduce cost base to a minimum and identify the areas with sufficient income potential compared to the required investment 
• Maximise the income potential by developing innovative services that are adapted to the rural populations.

Technologies such as hybrid base stations reduce the need for fuel, generator maintenance costs, security costs and fuel transport costs. New models based on tower site leases, maintenance outsourcing, transmission link sharing (either microwave or using cheaper satellite capacity), and community-owned infrastructure schemes will further reduce the operators’ cost base.

Innovative services that are making the best use of the infrastructure in the context of the rural population needs are necessary to ensure service adoption and income maximisation - these could include both telecom and non-telecom services. In Kenya, the Digital Village Project is a good example, where small businesses, educational institutions and individuals are given access to information technologies and the Internet. Regarding non-telecom possibilities, the use of the excess electricity generated at the base station also has potential (for example for vaccine conservation in fridges), as local access to the electricity grid is generally poor or non-existent. Operators need to consider indirect benefits of new services, such as improved brand image.

As world leaders agree that everyone should have basic telecommunication services, mobile operators in emerging countries have a particular role to play. The industry should structure itself to answer the challenge and with the right model and innovative ideas, it can be done profitably.