The mobile phone sector is fast becoming the meeting point for those who want to do good and those who want to do good business, especially in the emerging markets. Cell phones are no longer just tools for communication, they are now also the medium for providing micro finance, healthcare services, business opportunities, and vital information to low-income populations that otherwise would not have access to these. For example:
- In Kenya, a program called M-Pesa allows for cross-border money transfers in addition to domestic bill payments for television services or insurance schemes.
- In India, rural fishermen in remote villages are using their mobile phones to check on the national rates of fish and on weather conditions, thus helping increase the transparency of market data, boosting productivity, and facilitating trade.1
- In over 50,000 villages in Bangladesh, Uganda, and Rwanda, the Village Phone programme launched by Grameen telecom enables poor rural subscribers to own a phone and turn it into a business venture; the subscriber can buy, on credit, a simple mobile phone with very cheap billing rates to provide paid services to people in the adjoining area.
Other mobile phone innovations include “torch phones” that are designed specifically for people living in areas without electricity; multiple phone-books on single handsets for rural populations in India where many family members use a single phone; phones that can be charged using solar energy in Africa; and the buying and selling of goods via phone auctions in Bangladesh.2
Mobile Phones to the Rescue
The global spread of mobile phones has truly been amazing. No other technology has narrowed the gap between the developed and developing world so rapidly. In 2000, mobile phones were primarily available in developed economies; today, they have become a universal technology with more than 4 billion subscribers in 2008, up from 1.4 billion just five years ago.3 About two-thirds of these mobile phone users live in the developing world, with the BRIC countries (Brazil, Russia, India, and China) accounting for four out of the top five countries in terms of mobile subscription numbers. The collective impact of mobile telephony helps to boost economic growth and has the potential to raise people out of poverty, especially in developing countries.4
The market in these emerging economies is far from saturated. Even though India and China account for the some of the largest numbers of mobile phone subscribers worldwide, the trend has remained mostly an urban phenomenon, leaving the rural market ripe for mobile phone technology.5
Sub-Saharan Africa is another big growth frontier, says Francois Baird, co-founder of Baird’s CMC. A global study recently conducted by Baird’s CMC for the U.S. Chamber of Commerce showed that Africa has a potential mobile telephony market of 1 billion people. Baird, who helped facilitate a series of closed-door conversations between American CEOs from Fortune 100 companies and high-level African officials, explains that mobile phones are a way to leapfrog over the poor infrastructure problems that have typically plagued the Sub-Saharan region and kept large parts of the population from connectivity – the dependency on fixed-line phones6 with their accompanying infrastructure requirements can now easily be replaced with the mobility and cost-effectiveness of cell phones.
Pared to this growth in mobile telephony is the increase in the mobile internet in Africa. With the citizens of the continent increasingly relying on mobile telephony to drive entrepreneurial business growth, so to are they using their mobile handsets to reach segments they previously did not have access to thanks to internet connectivity. Furthermore, the increasing awareness and use of social media platforms is also driving the virtual gold rush to online products and services that take cognisance of limited bandwidth and slower internet connectivity than other markets.
Yet, says Baird, despite the enormous business potential, investors remain hesitant to enter the market because they don’t quite know or understand the landscape.
Navigating New Terrains
Indeed, as Dilip Cherian, a senior Baird’s CMC associate based in India puts it, the mobile phone market in these emerging economies is not unlike the wild west of yore – there’s a lot of “gold” as yet to be discovered, a lot of good as yet to be done, and vast tracks of still unknown terrain filled with all the potential opportunities and dangers.
Some possible dangers for new entrants in the Indian market especially, he explains, are high licensing fees and limited spectrum allocation. “The regulatory environment can be a real challenge,” says Cherian. “What you’ll often find is that during spectrum auctions, people are getting spectrum based on favouritism. And the result of this spectrum tussle is exorbitantly high prices and fees for new entrants.” Cherian says that established players in many of these emerging markets often influence government policies to give them the edge in an extremely dynamic and competitive environment, much to the detriment of cash-strapped new entrants who sink before they even have a chance to swim. Indeed, in the context-heavy culture of these markets, who you know and whose ear you have determine whether you are given the necessary tools – the right amount of spectrum bandwidth or policy regulations that benefit your business bottom line – to survive.
Other challenges for the mobile phone sector in emerging economies are asymmetric taxation on mobile usage (e.g., in some countries, such as Turkey, taxes represent as much as 44 percent of the cost of owning and operating a mobile telephone7); constantly changing regulatory policies that sow confusion and uncertainty in the minds of industry players, thus making it hard to attract international capital; and a quagmire of bureaucracy and politics.
To ARPU or not to ARPU
As a result, many new entrants are forced to put most of their efforts into tackling these challenges instead of focusing on increasing their average revenue per user (ARPU) rate, says Dev Chakrabortyy, a consultant at Perfect Relations (a Baird’s CMC implementation partner), who specialises in the telecom sector. A high ARPU rate, as he explains, is one of the most important differentiators in determining which company stays the course and which company drops out of the race in the long term. New mobile phone entrants have the potential to garner huge gains by creating innovative services that increase their ARPU rates; he describes one global company he worked with whose subscriber base quadrupled once it entered the Indian market. “The audience for varied content tailored to niche communities, e.g., the fisherman in Kerala or the call-centre executive in Mumbai, definitely exists,” says Chakrabortyy.
Urban centres in the BRIC regions, with the advent of 3G technology, are especially conducive for innovative multimedia such as games and video streaming. The rural markets shouldn’t be ignored either, says Chakrabortyy, pointing out that according to the World Bank, virtually all new mobile customers in the coming years will come from rural sectors in developing countries. The expansion creates huge opportunities for businesses providing services that will be able to reach millions of new low-income consumers. These services could include market information, financial services, education, and health services that have largely been unavailable in these areas due to the lack of connectivity. “2G technology works just as well in these areas. Simple information about crop rates or relevant news to local areas can fare very well in increasing ARPU rates,” explains Chakrabortyy.
Unfortunately, to be able to invest in creating these services and in truly understanding the needs of the end-user requires times and money, a lot of which, if not handled properly, can go into navigating the political and bureaucratic terrain of these emerging economies. “What is needed is someone on-the-ground who knows the landscape well, who can tell you where it is headed, and who can help you lobby to the right people so that you don’t get caught in the gunfire of price wars and political battles,” says Cherian, an expert on emerging economies. As he puts it, if new entrants, with the proper input, manage to steer their way through these potential challenges, what awaits them is “a whole wide world of opportunity.”
1You can read more about this in a 2007 paper titled: “The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector” by R. Jenson. According to the paper, the fishermen in Kerala who used mobile phones in this way increased their profits by 8 percent, whereas consumers on average paid 4 percent less for their fish.
2These examples are mentioned in the World Economic Forum’s “Global Information Technology Report 2008-2009”
3Source: International Telecommunications Union (ITU)
4The World Bank estimated in 2009 that for every 10 percentage points increase in mobile telephony subscription levels, economic growth increased by 0.8 percentage points in developing countries and by 0.6 percentage points in developed economies.
5In 2008, according to the ITU, China had a penetration rate of 48 mobile subscriptions per 100 inhabitants and India a rate of 30.1 per 100.
6According to the ITU, only 2.8% of the African population currently has a fixed-line phone
7Source: World Economic Forum’s “Global Information Technology Report 2008-2009”