Urbanisation driving mobile growth in BRIC countries - BRIC mobile operators adapting strategies to support urban cellular connections growth

Population growth is becoming a largely urban phenomenon concentrated in the developing world, which explains the fast declining rural populations in most BRIC countries. These countries also share a number of other characteristics that are shaping their respective mobile markets, including a burgeoning new middle class, high penetration in urban areas and high instances of multiple SIMs per user.

According to recent figures from the United Nations Population Division (UNPD), urban areas are expected to account for almost all the global population growth expected over the next four decades, while at the same time drawing in much of the rural population. Between 2000-10, the rural population declined by 6.4 million in Brazil, by 1.4 million in Russia and by 95.6 million in China, while India was the exception with its rural population growing by 95.8 million.

Brazil has the lowest share of rural residents at 13.5% in 2010, a rate which is expected to fall to 6.4% by 2050. Large cities in the Southern and Central parts of the country continue to drive cellular connections growth, despite a high level of maturity, and represent two thirds of the Brazilian mobile market in terms of connections. Last year, mobile penetration reached 148% in Brazil’s Central-West area, 134% in the South-East and 124% in the Southern states, compared to 110% and 107% in North and North-East Brazil, respectively.

The 16 states across the North and North-East of Brazil added 15 million mobile connections last year - almost as many as were added in the four states that form the country’s South-East region (Espirito Santo, Mina Gerais, Rio De Janeiro, Sao Paulo). Nevertheless, Maranhao and Piaui – the two poorest states of Brazil, located in the North - registered the fastest connections growth in the country (33% and 29%, respectively). The former is the only remaining state with mobile penetration below 100% (80%) compared to Distrito Federal at 212%, Matto Grosso Do Sul at 140%, Sao Paulo at 142% and Rio de Janeiro at 135%. Maranhao and Piaui have the country’s highest prepaid customer bases at 94% and 91%, respectively.

Russia also has a low rural population at 26.8% of the total in 2010, a figure projected to fall to 17.3% by 2050. Two thirds of Russia’s mobile net additions last year came from regional areas outside of Moscow and St Petersburg. The two largest cities in the country represent 22% of the Russian mobile market in terms of connections and have mobile penetration rates of 212% and 215%, respectively. Mobile growth in Russia is coming largely from the hundreds of smaller towns and cities with less than 100,000 inhabitants.

India is the only BRIC country to show an increase in the rural population over the past decade to 850 million inhabitants or 70% of the total population. The UN predicts that India’s rural population will start to decline from around 2025, eventually falling to 45.8% of the total by 2050. But despite the large rural population, mobile connections growth in India is being largely driven by demand in cities. Net additions in urban areas reached 85 million last year compared to 57 million in rural areas with mobile penetration increasing by 20 percentage points in urban areas to 161% against a 6.5 percentage point rise in rural areas to 36.6%. This means that rural demand in India is not offsetting high levels of maturity in urban areas as it only represents just over a third of the country’s mobile market. At current growth rates, we project that rural mobile penetration – fuelled by multiple SIMs per user - will pass the 50% mark in 2014, getting close to 100% by 2020.

China’s rural population currently represents half of its total population (53%) according to the UN and is on course to fall to 26.8% by 2050. The Chinese population is largely concentrated on the Southeast coast of the territory which hosts the country’s ten most populated cities. As of November 2011, half of China’s mobile market is based in the East of the country while Western and Central areas hold a quarter of the market each. This regional distinction is also true of mobile growth over the last few years. The market in the Eastern (mainly urban area) of China increased by 115 million connections between November 2009 and 2011, almost twice that in the more rural Western and Central areas, which each added 61 million net additions during the same period.

Joss Gillet, Senior Analyst, GSMA Intelligence:

In the BRIC countries, urban cellular demand is twice as high as in rural areas and urbanisation trends are exacerbating this phenomenon. Even though urban markets show signs of saturation in most BRIC countries, they are still driving mobile growth whereas demand in rural areas is growing at a steady, yet slower, pace. Mobile operators in the BRIC markets – and in the developing world in general – are therefore facing a dual challenge: to introduce more affordable products and services to meet price-sensitive demands in rural areas; and to fight high churn in mature urban areas. In Brazil and China, churn stands at around 3% compared to 4% in Russia and 7% in India. During Mobile World Congress last month, America Movil’s VAS & International Roaming Director Marco Quatorze mentioned that 80% of its churning customers in Brazil are existing Claro prepaid users moving to new Claro prepaid offers and promotions. Furthermore, in such vast and diverse territories, operators have to adapt services to local demand since what might work in one part of the country might not in another. Operators in these countries – especially in India – are looking for greater clarity of regulations and policies as well as the introduction of cheaper (sub-US$50) smartphones. With over 600 smartphones available in China, the country is well placed to lead handset price erosion, while governments are urged to support operators’ network investments by adapting policies (notably regarding taxation) to a rapidly changing mobile environment.

BRIC countries: mobile connections, growth and penetration, 2011
Source: GSMA Intelligence, World Bank, UN

¹ World Bank, Atlas method, current US$, 2010
² United Nations, World Urbanization Prospect, 2009 Revision