14 WEDNESDAY 14th NOVEMBER 2012 FEATURE | ALTOBRIDGE A RURAL SOLUTION FOR RURAL MARKETS IS THE ROUTE TO PROFITABLE RURAL EXPANSION. By Mike Fitzgerald, CEO, Altobridge


The Profitable Reality of Rural


distraction best kept within the bounds of Universal Service Obligations. Perceptions of high truck-roll costs, lack


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of backhaul infrastructure, the absence of cost-effective power, low consumer uptake and fearfully low ARPUs, all fuel the fire to a widely held conclusion that the business case for rural connectivity simply doesn’t stack up. But it’s time to think again. Delivering


mobile connectivity to unconnected rural African communities should be embraced and not shirked or seen as a USO-only im- perative, because there is now widespread evidence that, given the opportunity, rural communities actually deliver highly attrac- tive returns on investment.


A RURAL SOLUTION TO A RURAL PROBLEM Mindset has been a significant barrier to rural network expansion globally. Too many rural expansion initiatives have failed commercially simply because standard, high-CAPEX, high-OPEX urban network solutions have been deployed to deliver rural connectivity. And the result? The combination of high capital costs and uncontrollable operating costs conspire to deliver a ruinous business case, despite the healthy ARPUs generated by grateful con- sumers, enjoying the benefits of first-time mobile connectivity. The problem is that urban network


solutions have been specifically designed and engineered to deliver urban con- nectivity. These solutions cannot be easily transposed, either physically or commer- cially, into rural environments. In CAPEX terms alone, for instance, the total site costs to deploy a typical urban solution, e.g., micro base-station, 30+ metre tower, air-conditioning and housing units, etc., in an ultra-rural location, will often exceed US$250,000. Yet many innovative operators have


already embraced the strategic imperative to extend their coverage footprint to the edge of their networks. Using tower-less, passively cooled, outdoor, solar powered base stations and low-cost VSAT backhaul terminals, they have discovered a CAPEX model that deliv-


here is a common belief within the mobile community that network expansion beyond urban conurba- tions is a commercially ruinous


ers 2G or 3G connectivity to communities of up to 2,000 rural subscribers for less than US$50,000 per site, including all installation and commissioning costs.


THE ONLY WAY IS UP Meanwhile, at an OPEX level, backhaul is a significant factor. In rural communities, where fiber is non-existent and microwave is too costly to deploy, satellite is the only prac- tical and realistic backhaul option. However, satellite backhaul is inherently expensive if bandwidth is not optimised. For exam- ple, the backhaul cost for a non-satellite optimised, 2TRX base station will typically exceed US$1,000 per month and, therefore, make any business case unpalatable. However, this picture changes dramati-


cally when a bandwidth optimised, satellite backhauled base station is deployed instead. In this scenario, with only 4kbps bandwidth required per active call and with all local calls switch locally, backhaul costs drop dramatically to ~US$250 per month. This metric alone is the difference between com- mercially viable and commercially ruinous network expansion into rural communities. The vast majority of the rural population


in Africa live in off-grid communities and it is estimated that 1.3 billion people globally will still be off-grid by 2030. Therefore, reli- able and affordable power is the other criti- cal OPEX factor for commercially achievable rural rollout. High-CAPEX and high-OPEX diesel generators are not an option for a host of reasons: transport difficulties across chal- lenging terrains, the volatility of global fuel prices and the risk of fuel shrinkage both en-route and on-site. As the CTO of one African operator said recently, “our biggest operational cost is the diesel that drives our Radio Base Stations. Our second biggest is the cost of the diesel used to transport the diesel to site”. Therefore, solar power is the only practical and feasible option in such circumstances. Beyond its green credentials, solar power has the virtue of being almost maintenance-free and, over and above pow- ering the remote base station unit, surplus capacity can be used to provide an invalua- ble means of power to off-grid communities.


THE LOW ARPU MYTH However, costs are costs, no matter how ab- solutely or relatively low they are squeezed. A credible business case requires sufficient


revenues,in the form of subscriber uptake and usage in order to outstrip those costs. There is a widely held industry belief that unconnected rural communities offer universally low ARPU potential. Furthermore, a rule-of-thumb calcula- tion is often used to project rural ARPUs, namely, that rural communities will, at best, deliver ARPUs that will equate to half of the operator’s national ARPU. It will therefore surprise many that in our experience, in more cases than not, rural ARPUs typically match or exceed opera- tors’ national ARPUs. We have repeatedly seen this phenomenon in rural deploy- ments throughout Africa and Asia where USD$ 5.00 monthly ARPUs are the norm rather than the exception. It is also worth noting that these ARPUs are driven by voice and SMS traffic alone, on tariff plans which are on par with operators’ national / urban tariff plans. Now that cost-effective 3G-over-satellite mobile broadband is available and the cost of 3G handsets is becoming more affordable, rural community ARPUs will only climb further upwards.


This apparent irregularity,


where rural community ARPUs match or outperform blended national ARPUs, can be easily explained. Firstly, thriving, liter- ate and tech-savvy communities exist on the edge of every urban network and each one of these communities has its own micro- economy. Where goods and produce were previously traded only in person and in igno- rance of wider market pricing, each newly connected micro- economy now has access to the wider macro-economy’s markets and pricing through mobile con- nectivity. Secondly, for network opera-


tors, there is a unique ‘first-in- wins-all’ phenomenon in rural markets. It is driven by the fact that 1,500 subscriber-size com- munities cannot commercially support more than one opera- tor. As a result, the operator who first delivers connectivity to these communities, not only acquires all available subscrib-


ers, including the prized high-ARPU segment, but it builds a stronghold within that community which deters competitor entry. It also means that, while securing an optimal subscriber base at the lowest possible acquisition cost per subscriber, there is also zero churn within that community.


THE FUTURE IS ‘LITE’ African operators are now beginning to see the market potential and the business case for following a rural connectivity strategy using Altobridge lite-site™ infrastruc- ture, i.e., solar-powered, pole-mounted, passively-cooled, outdoor base stations, optimised for maximum satellite band- width efficiency. Under these low-CAPEX and low OPEX conditions, network opera- tors including Orange™ in Niger, Tigo in Ghana, Indosat in Indonesia, Maxis in Malaysia and Asiacell in Iraq, are already seeing a highly compelling business case for rural expansion.


For further details, visit Altobridge at Stand C13, AfricaCom 2012.


AFRICACOM DAILY 2012 I http://africa.comworldseries.com/


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