Rural Connectivity and the Economic Impact of Mobile Phones

Now that we’ve looked at the history of Internet and mobile services in India as well as people’s general attitudes towards their adoption, let’s look at how the rapid distribution of  mobile phones have changed the face of the economy, with special focus on rural penetration.

As part of the Vodafone Public Policy series, a study led by Professor Rajat Kathuria of the Indian Council for Research on International Economic Relations (ICRIER) was conducted in January 2009 to analyze the impact of telecommunications on economic development in India and compare its progress to that of other developing nations. State-level data was collected to investigate the impact of mobile phones across states, economic sectors and population segments. The results of the econometric analysis that was performed suggest that there is a causal relationship between higher mobile penetration (mobile subscriptions/population) in a region and higher economic growth, by 1.2% points a year more on average for every 10% increase in the penetration rate. The study also measures to what extent the benefits of the 8-10% growth rate are trickling down to the poorer socio-economic groups. The study indicates that in the agriculture and small and medium enterprise sector and even amongst the urban slum dwellers, access to telecommunications is an important to realizing productivity. Citizens who have mobile phones can tap more easily into the benefits of information and opportunity, and thereby economic growth.

While 2008 saw the growth in telecommunication connections reach 10 million per month, certain harsh realities have been overlooked: (a) Teledensity lags behind other developing nations at similar stages of development (b) Many less developed states in India, such as Bihar, Uttar Pradesh, Orissa and Madhya Pradesh and Assam have penetration rates of less than 20%.

The growth of mobile in India can be seen as an outcome of a compelling technology and an increasingly liberal policy environment. While the growth of mobile is accelerating, the growth of fixed lines is trending down. In March 2008, mobiles accounted for 86% of all telephones in India, and by October 2008 this number had increased to 90%. Contrast this with the situation in 1999 when mobile constituted just 5% of all telephones. The study slightly underestimated the number of subscribers there would be in 2010 (540 million) as the figure has currently gone beyond 600 million.

Mobile density across states and between urban and rural areas to a large degree reflects the differences in per capita income across states. The simple correlation coefficient between per capita income and mobile density for 2008 is 0.87 (where 1 would indicate perfect correlation). Yet another determinant of penetration is how early the state or region started liberalizing telecommunications. Despite the massive increase in mobile density, access is still skewed towards urban areas where much of the industrial base is located. However, the study does cite some reasons to be optimistic:

(1)   Urban teledensity (all attributable to mobile growth) increased by 34% while rural teledensity increased by 62% from March 2007 to March 2008, the disparity reflecting the low rural base (These figures have changed tremendously since 2008. The more recent ones are available on one of the previous blog posts).

(2)   Until around 2008, the focus of mobile operators’ attention had been on the more lucrative urban markets. High cost of infrastructure rollout in less dense rural areas and affordability for the rural population were big hurdles. But now infrastructure rollout in rural areas is now eligible for subsidy and all major providers have reported future plans for expansion in rural India.

Today’s mobile technology has the potential of reducing the digital divide. The authors of the report believe that at the policy level, there is a need to recognize the significance of wireless, both for delivering voice and for data services, and to stimulate the installation of backhaul infrastructure in rural area through the use of incentives.

3G Adoption in India

To better understand the attitudes of most Indians with regards to mobile devices, I looked at a study published in June 2010 in the International Journal of Next-Generation Networks. Entitled “The Forecasting of 3G Market in India Based on Revised Technology Acceptance Model,” this study was a collaborative effort by some renowned Indian physicians, professors of engineering, and application developers. They define 3G services to include “wide-area wireless voice telephone, video calls, and wireless data, all in a mobile environment… [3G] allows simultaneous use of speech and data services and higher data rates.” 3G has been made possible in India as a result of 2-8 Mbps bandwidth availability. Some of its applications include (a) Mobile TV, (b) Video Conferencing, (c) Tele-Medicine (where a remote person can be given attention by a doctor located at a distant place), (d) Location-Based Services, and (e) Video On-Demand.

To assess the factors affecting adoption of 3G services in India, the researchers used the following measures: (1) perceived usefulness, (2) perceived risk, (3) perceived ease of use, (4) individual characteristics, (5) cost of adoption, (6) perceived service quality, (7) apprehensiveness, (8) subjective norms, (9) perceived lack of knowledge, and (10) intrinsic motivation. The researches collected their data by surveying, emailing and interviewing students from schools/colleges/institutions in urban areas, employees of Government/Private sector and highly educated housewives who use 3G services. Of the 400 respondents, 65% were male and 45% were female. The respondents were asked to assess the eight listed parameters with a set of statements on a 5-point Likert scale, ranging from 1 (strongly agree) to 5 (strongly disagree).

The results were tabulated as follows:

Item	1	2	3	4	5
Perceived Usefulness	12.5	60	25	2.5	0
Perceived Risk	62.5	37.5	0	0	0
Perceived Ease of Use	37.5	50	12.5	0	0
Individual Characteristics	50	25	25	0	0
Cost of Adoption	50	37.5	12.5	0	0
Perceived Service Quality	25	50	25	0	0
Apprehensiveness	50	25	25	0	0
Subjective Norms	0	50	37.5	12.5	0
Perceived Lack of Knowledge	12.5	37.5	25	12.5	12.5
Intrinsic Motivation	37.5	37.5	25	0	0

From the results, it is clear that perceived risk and cost of adoption have the greatest (negative) effect on Indians’ attitudes towards using 3G services. The next two items that has a strong (positive) effect is perceived ease of use and, consequently, perceived usefulness. Intrinsic motivation and perceived service quality play a significant role in determining people’s attitudes as well. Apprehensiveness and individual characteristics are slightly less significant. Surprisingly, subjective norms and perceived lack of knowledge have no effect.

The data presented in this study is useful not just to telecommunication companies, service providers, businesses and banking services, but to the general public too. Yet, there are certain limitations that the researchers themselves note. First, the sample size is relatively small as compared to the number of mobile users in India. Second, alternative models should be considered in future research to make comparisons about which model best represents the typical Indian consumer in relation to the adoption of 3G services. A third shortfall is that this study was limited to urban settings. To truly examine the success story of the telecommunications market, rural penetration and connectivity are important factors to acknowledge as well.