Emerging Markets Communications Strategies

Analyzes the issues facing existing and new players who are looking for a share of growing mobile markets in over 30 developing countries, including the developing regions of Asia and Africa.

March 5, 2012 16:56 telliott

In the  talk at MWC in which he called for a $50 smartphone , Bharti Airtel Chairman Sunil Mittal also made an interesting observation about Airtel’s low price strategy in Africa: it isn’t working.

More precisely, what he said is that consumers haven’t responded to lower tariffs by talking more, which would at least sustain revenue. Instead,  he observed that “in Africa, subscribers use the money saved on lower-calling rates to buy food and not to talk more.”

The nerve! What’s the matter with these people? Buying food instead of talking on their phones about how hungry they are.

Seriously, Mittal’s remark seems like a staggeringly un-nuanced view of the African consumer, of a piece with his remark elsewhere in his speech that he was surprised to find there is no middle class in Africa.

That said, there undoubtedly are Africans for whom lower phone bills mean increased purchases of other - and more critical – goods.  But I think what we’re seeing here is the second edge of the dual edged sword that is demand inelasticity.

  • On the one hand, operators in countries like Angola have benefitted from the fact that high prices don’t seem to curtail demand: ARPU in Angola is about three times that of Ghana, but average minutes of use are actually higher. (See "Emerging Markets Mobile Subscriptions Forecast, 2010-2015: Sub-Saharan Africa")
  • On the other hand, as Airtel seems to be finding out, after a point cutting prices doesn't stimulate more use. 

 

 

Possibly Airtel’s African customers have said all they have to say.

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PS. Mittal is also quoted as saying they were surprised at how expensive it is to operate in Africa. Sunil, man, give me a break! You mean nobody did any due diligence before writing that big check to Zain?


April 27, 2011 20:39 telliott

The Asian Development Bank (ADB) recently released a sobering study on the impact of rising food prices on the poor (“Global Food Price Inflation and Developing Asia”).

  • In Vietnam the price of rice rose 37% in the last half of 2010; wheat prices in Bangladesh went up by 50% in the same period.  
  • Overall, the ADB estimates that domestic food prices rose 10% in the first two months of 2011, with every 10% increase pushing an additional 64 million people in the region into poverty.

Rising food prices are not temporary. Prices spiked in 2007-8, largely due to weather, but the fact is that prices have been rising steadily since 2000, particularly for cereal grains like rice and wheat that are staples of low income diets. And prices will continue to be driven up by structural factors that include loss of agricultural land to urban development, use of food grains for biofuel production, and the upscaling of diet that accompanies rising incomes around the world.

 

The ADB estimates that food accounts for over 60% of household spending by poor Asians. Even in relatively prosperous Egypt, food is 40% of household expenditures, according to Credit Suisse. In contrast, in the EU food is only 20% of household spending.

  • If something that accounts for 20% of the budget goes up by 10%, most of us would notice it but probably not change behavior radically. Apply that same increase to 60% of the budget, however, and some discretionary items are likely to be squeezed out. Like mobile phone spending, for example. (See "Voices of the Next Billion: Mobile Adoption at the 'Bottom of the Pyramid' .")

Owning a mobile may no longer be purely discretionary for many low income people, but upgrading that phone, downloading another ringtone, sending another text – these are expenditures that might be postponed if the trade-off Is not having enough to eat.

Now let’s be clear: the primary problem we should be concerned with is that fellow humans are at risk of malnourishment or starvation.  However, crass as it may seem to mention it, rising food prices do have a potential impact on the mobile communications business as well.

  • There may be insufficient data to model the impact of rising food costs on ARPU, but it would be foolish to assume there is none. It would also be foolish to assume that food costs are not going to continue increasing for some time.