If you thought customers in semi-urban and rural markets were using mobile phones only to make calls, think again. If Reliance Communications [Get Quote] Ventures Ltd is to be believed, this is a myth, which has been broken.

Much to its surprise, the company realised that a sizeable portion of its customers in the towns and villages of the Bimaru (Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh) states were using cellphones to log on to the Net, stream video clippings and for infotainment.

GSM companies might be concentrating only on voice revenues in their quest to address the rural markets. Reliance, however, is banking on data and video to do the magic. Not that it is giving up on voice. It only means that the company is increasingly expecting a large part of the revenue to come from data. This is the key plank of Reliance's big new push into the hinterland of the country.

The company means serious business. It currently has its network available in over 240,000 towns and villages across the country constituting for 42 per cent of the rural population. But by the end of the year, it wants to nearly double the rural coverage to 400,000 villages - about 50 per cent of the rural population.

That is far more ambitious than the best GSM player in the marketplace. For instance, according to Cellular Operators Association of India, coverage of the most aggressive GSM player in villages is around 100,000 to 150,000 (much lower than Reliance) and is expected to hit about 300,000 by the end of this year. However, if Bharti figures are anything to go by, till December last year it had reached over 58000 villages and non-census towns around the country.

Farming out

Explaining the rural thrust, S P Shukla, president -wireless in Reliance Communications, says: "Our USP in rural India is our ability to cover broadband at high speeds all across the country on our existing CDMA platform unlike GSM players. It is this USP that we plan to leverage in our thrust in expanding to rural markets".

That is not unusual for a company, which since its inception has been pushing data as a key plank to differentiate between it and the other GSM boys.

But that is not the only area that the RCVL under the new management is focusing on  - it is quietly moving in to speed up the rollout of broadband to consumers at home after a very slow start, creating new markets in the wireless space which were hitherto untapped and, of course, strengthening its large distribution base to sell its products and its services with deep penetration in rural India which is unmatched by any other telecom company.

First, what is the company's plan to offer broadband at homes? Analysts say a few years ago RCVL, when Mukesh Ambani was at its helm, had set out an ambitious target to connect over one million buildings across the country directly by fibre or ethernet for broadband connectivity. But those numbers did not fructify. At the moment they have wired over 50000 buildings - equity analysts say they claim a 40 per cent market share in these buildings. And it constitutes for only four per cent of its revenues.

So what is the road ahead? The company expects to invest Rs 1500 crore (Rs 15 billion) annually on broadband over the next three years. Reliance executives, however, are not willing to disclose any fresh targets.

They point only that they have a well thought-out strategy and because of global technologies which are changing every day they have to reorient their choice of technology (whether to go direct-to-home with fibre or through digital subscriber line or ethernet or the new alternative, Wimax) of reaching the end customer with broadband connectivity at home.

They point out that they have strengths which are unmatched by any other private sector telco - they have 80000 kilometres of fibre across the country, out of which one fourth is within cities.

However, in presentations to analysts and investors, the company gives some insight as to what the group wants to do. It is looking at offering an integrated bundle of broadband services to a customer at his house for which he need not fork out more than $ 30.60 (around Rs 1400 at current exchange rates) a month. And for that price, the company will offer an array of services � from basic interent access, security services, personal web and storage, voice services, IPTV services, webcam and even video phone services.

The goal is to offer customers virtually whatever they want - Wi-Fi Internet at home so you can surf anywhere in your house, wireless streaming of music, movies or pictures from the PC to the TV or the laptop, gaming services amongst others.

These, of course, could be killer applications. For instance, in IPTV (which Reliance is developing with Microsoft) the customers get flexibility in choosing serials or movies from the various channels. They can see it at whatever time they choose, as the programs are stored in a central server.

It's a USP which cable does not offer. It could also be used to provide video on demand services to customers. A surveillance service could also be popular - as it allows you to keep a tab in your home from a distance either on your PC in the office or even on the mobile. You could even get SMSs if your car door is closed, or alarms if someone breaks in at home.

Too good to be true?

Analysts, however, point out that last mile connectivity would need the group to put in substantial investments. Says a senior analyst of equity research firm: "The company can connect over one million buildings as they already have the fibre in these cities.

"But it would cost them at least $ 100 for each subscriber for the last mile if not more and that means it needs to undertake fresh investments". At those costs, experts say they would take three years to connect one million subscribers.

Competitors argue that offering bundled deals on the broadband does not mean that customers will come in hordes. Says a senior executive of a competing telco: "Commercial deployment of IPTV is far and few, and we don't see customers shifting away from entrenched cable operators at all. Customers are already getting triple play-Interent, cable and voice telephony but from different service providers for around Rs 1,000. And remember DTH is also coming".

It is the rural thrust, of course, where RCVL has a major advantage because of the high speed that they can offer subscribers for surfing the Net. Shukla explains the reason: CDMA networks offer speeds of 144 kbps, compared to 9.6 kbps of GSM and 56 kbps in a GPRS enabled network. Dial up connectivity does not provide more than 2-3 kbps speeds. Clearly, RCVL can offer data as an USP, which GSM would have very little chance to match.

There is another key difference. Reliance can offer 144 kbps across the country in over 3600 towns. In contrast, its fiercest competior in the private sector in the GSM space offers 56 kbps in less than 25 towns.

But to cater to the rural market would need specialised content apart from the popularity of entertainment (movie clips, song downloads, etc). The company has already worked out a bevy of such services � like online price of cops in mandis, weather report at local levels and of course introduction of virtually all the regional languages to surf information.

More importantly, Reliance is also ensuring that the cost of acquisition of a connection is low in rural markets and it has a host of mobile handsets to choose from (nearly 37). The trick lies, of course, in pushing data-enabled phones in the market and one route is to encourage second hand sales.

And in its presentation, the company hints at developing a pre-used handset market. Reliance executives say data-enabled phones - currently priced at Rs 3,000 - are available in the pre-used market for less than half the price.

Rival GSM players, however, have a different perspective on the data thrust. Asks T V Ramachandran secretary general of the COAI "Sure Reliance's main thrust has been on data, but their revenue from non-voice services as a part of their total revenue is half of that of the leading GSM players."

But there's no stopping it

Whatever the answer, Reliance is aggressively strengthening its distribution system in order to meet the new rapid expansion spree into smaller towns and villages. For instance, in towns with less than a 50000 population, the company has roped in retailers to set up a "Reliance Mobile Shop" which can get into other related business but would sell only their telecom products.

At the village level, it has distributors in over 240,000 towns and villages who have a mobile phone and e-recharge customers once they want to extend their talk time. Shukla says that with e charging facility available these retailers no longer have to buy recharge coupons.

It is also creating new wireless markets hitherto untapped. For instance, Reliance executives point out that because of the encryption technology, which is possible in CDMA phones, they can run ATM machines wirelessly.

Earlier the option was to go for a VSAT connection, which required clear line of site. As a result, banks are using the RCVL network to run ATMs on boats in the backwaters of Kerala. The company has deployed over 500 such ATMs across the country.

This is the not the only market that Reliance is tapping. It also has used wireless technology to run PCOs where it has over half the private sector market under control. Surely, the new focus in Reliance is two fold: penetrate deeper into rural markets with data offerings, and leverage the large fibre backbone to roll out broadband services - especially to homes. And, of course, to create an unmatched distribution system. Whether the strategy will ensure that it can woo more customers will be the litmus test for its plan.

How broadbased is RCVL

• Customer base: 18 million
• Coverage: 3700 census towns and 240000 non-census towns and villages
• Wireless traffic per day: 320 million minutes
• Broadband coverage: 50000 buildings
• Customer capacity: 30 million
• Wireless Internet customer base: 350000
• Wireless PCO lines: 775000
• Wireless multimedia users 5.3 million
• Rural population covered: 42%
• Urban population covered: 97%
• Number of data enabled phones: 10 million