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?


July 27, 2011 22:31 telliott

Famine in the Horn of Africa is calling attention to a great many problems, not least of which is that people can’t eat ones and zeros. Somehow food (or medicine or farming tools or mosquito nets) has to get physically from one location to another and then get to the right person in the right amount.

An awful lot of aid work is logistics management, and on paper it looks like the process of getting car parts to assembly plants or stone-washed jeans to shopping malls. But paper is one thing, and Somalia is another.

Most of us in the West have an image of aid distribution – a crowd of people pushing and crowding around a truck from which aid workers are tossing out packages. Pejoratively referred to in aid circles as “truck and chuck,” this scene is probably less common than a much more prosaic one, in which a long line of people wait for hours as their documents and sometimes fingerprints are checked manually before they receive their allocated ration.

This is less dangerous and generally more equitable than the truck and chuck, but it is inefficient for the aid workers and difficult and demeaning for the recipients.

Last Mile Mobile Solutions (LMMS), which is part of World Vision, a large international NGO that is active in relief work, has developed a very elegant mobile solution to manage aid distribution in the field.

  • The aid beneficiary is first registered by an aid worker using a PDA. Relevant information about age, family size, dwelling location and so on is entered into the device, which then takes a digital picture of the registrant which is used to create a ration ID card with a bar code. Cards can be printed on the location, if a printer is available, or centrally if it is not.
  • On subsequent visits to receive aid, the beneficiary presents the ID card which is scanned by an aid worker with a PDA. The PDA displays the picture associated with that ID, allowing the aid worker to verify that the beneficiary’s identity to prevent substitution. The PDAs are linked wirelessly to a laptop on the site, so accurate data is kept in real time.

According to a World Vision spokesperson, food distribution at even a large site takes no more than two hours – a process that used to take all day. (See "Second Screen Prospects in the Developing World: The NGO Market")


June 29, 2011 03:05 telliott

Earlier this year Movirtu, a UK-based company specializing in Mobile Identity Management, reached an agreement with Airtel Madagascar to offer a cloud phone service.

  • Movirtu’s Cloud Phone gives a user a phone number that can be used for voice and text messaging, but which is not associated with a physical phone or SIM card. The user, who prepays for service, borrows or rents a mobile phone, enters a unique ID number and makes and receives calls, sends and receives texts or makes and receives mobile payments. The owner of the device is credited with a small amount of airtime to encourage lending.

An island country with a population of 21 million that is largely rural (70%) and extremely poor (per capita GDP = PPP$ 900), Madagascar is in many ways an idea environment for Movirtu’s virtual phone service. There are many people who are simply too poor to own even a second hand phone, and the island’s rudimentary roads and diffuse population make it challenging to profitably distribute even something as modest in size as a SIM card.

The Movirtu experiment in Madagascar may succeed or fail, but either way it raises an interesting question about the nature of the mobile phone in developing countries. If the phone is a simply a device to communicate, then accessing phone service as an ID-based cloud service makes as much sense as accessing email through Internet cafes, rather than owning a laptop and paying for connectivity.

  • On the other hand, if the mobile device becomes a primary platform for entertainment and information, as well as communication– as many in the industry devoutly hope – the cloud model may not work quite as well. Moreover, owning a mobile phone can represent an achievement of no small personal significance - owning a phone number may not have the same impact. (See "Voices of the Next Billion: Mobile Adoption at the 'Bottom of the Pyramid ")

May 28, 2011 17:18 telliott

The One Laptop per Child initiative is still beavering away (MIT pun intended) at its project of getting rugged, internet connected laptops into the hands of schoolchildren throughout the developing world, getting closer to deploying its one millionth XO computer in Peru. Meantime, there is a global movement with the somewhat more limited goal – perhaps –of distributing e-book readers to school children in the developing world.

  • Worldreader is a non-profit that was started to get e-book readers and content distributed to school children around the world. It was co-founded by David Risher, a former Amazon exec who left the company before the Kindle came out, but who presumably knows a guy at the factory, because so far they are using donated Kindles as the platform. Worldreader is currently running pilot projects in six elementary and secondary schools Ghana, giving about 300 pupils access to e-readers preloaded with textbooks and supplementary reading.

    A number of commenters on a recent story on the Worldreader project have objected that it must surely be cheaper to ship a lot of used paperbacks to schools in Ghana than to send them Kindles. Yeah, it probably is, and sure, reading something is better than reading nothing, but really, people, if the point is to help young Ghanaians grow up to be productive citizens of a functioning democracy, surely we can do better than airlifting in a bunch of old junk that couldn’t be sold at a yard sale. And anyway, once the Kindles are in place, it’s a lot easier sending ones and zeros into outlying regions than physical objects. (Which is not to say that sending ones and zeros is necessarily easy: just easier.)
  • The Indian government made a splash last year by showing a prototype of a $35 e-reader that would be manufactured in India. There has been some skepticism about achieving the price point in the near future – particularly with the announced functionality, which includes Wi-Fi and 2GB of RAM – but with US drug stores selling a $100 Android tablet it doesn’t seem completely insane.

    At this point, there is not much network impact to these reader projects – content will probably be loaded centrally. But it’s a short step from that to a requirement for connectivity to update, to pursue links, to have, in other words, a full 21st century educational experience.

See "Tablets in the Developing World: Now? Soon? Ever?"


March 23, 2011 20:30 telliott

Those closely following the Libyan crisis may have noticed that governments and regional organizations in sub-Saharan Africa have been somewhat less vocal in their opposition to the Gaddafi regime than, for example, the Arab League. There is certainly room for legitimate differences of opinion in this complex matter, but a cynic – moi? – might also point out that Libya has invested heavily in the region, including in the communications sector.

The Libyan African Investment Portfolio, a sovereign wealth fund, owns 100% of the LAP GREEN Holding Company, which in turn holds controlling interests in

  • Oricel Green (Cote D'ivoire, 75%)
  • Rwandtel Rwanda, 80%)
  • Sonitel (Niger, 51%)
  • UTL (Uganda, 51%)
  • Zamtel (Zambia, 75%)

The potential difficulty is that the Libyan African Investment Portfolio is one of the entities whose assets were ordered frozen by UN Resolution 1973, adopted by the Security Council on 17 March. 

Now, having one’s parent company’s assets frozen would not necessarily be a bad thing for an entity that has no need of external funding – “Sorry, the UN won’t let us pay you dividends, we’ll just hang onto the cash until you get this straightened out.” Alas, most of Libya’s sub-Saharan operators are not in the happy position of having no financing needs.

  • UTL is in a dispute with MTN, the dominant mobile operator in Uganda, over interconnection fees. MTN claims it is owed on the order of US$8.3 million and has threatened not to accept UTL-originated calls; UTL says is it is much less, US$ 1.5 million, but it is also looking at interconnect claims from Warid and Airtel.  
  • Although bravely proclaiming its financial stability, Zamtel, formerly a fixed line operator, is in the middle of an extensive project to build out its fledgling GSM network, with more than a doubling of base station count anticipated.

Outside financing, including vendor financing, is still possible, but without any assurance that Libya’s oil money will continue to flow unimpeded, it is safe to say that borrowing may be more expensive. 

LAP GREEN’s mobile operators have, for the most part, relatively small shares of their markets. Nevertheless, their competitors, which include MTN, Orange, and  Airtel, stand to benefit from any financial difficulties that would impede the Libyan-owned operators as they try to grow share. 

 

Click here for information about SA’s most current forecast of the emerging markets of the Middle East and North Africa and Sub-Saharan Africa.


February 24, 2011 19:08 telliott

It is often noted that people in emerging markets spend much greater portions of their incomes on communications than they do in developed countries. Low-income Indian mobile users we recently surveyed reported spending about 4% of monthly income on mobile service. People in the lowest household income bracket (up to US$750 per year) had mobile phones that cost on average 5.5% of their annual household income. In contrast, we estimate that the average US mobile user spends less than 0.4% of household income on a handset.

Findings like these are frequently offered in support of the idea that demand for mobile communications in developing countries may be less elastic than we think: the utility of mobile communication may be great enough that people will spend what seems at first blush like “too much.”

 But the demand for gaining access to communications by getting a handset is different from the demand for using it by making calls and sending texts.

 The hardly radical concept that charging less for communications services will increase usage is being tested in several places in Africa, notably Kenya, where new entrant Bharti Airtel has started a price war: 

  •   In August 2010 Airtel (then still Zain) cut tariffs in half, from 6 to 3 shillings (US$ 0.073 to US$ 0.037) per minute. Not content with that, in January of this year Airtel cut rates again, to 1 shilling for calls made between 6AM and 6PM. Airtel reports that MOU tripled after the first reduction.
  • Market leader Safaricom, whose Uwezo tariff is 2.24 shillings on-net/3.39 off-net*, is less than amused by this latest cut and has publicly complained about it. Telkom Orange has also filed a complaint with the Communications Commission of Kenya (CCK).
  • The CCK has blandly expressed a lack of concern, noting that “'We do not see the low tariffs having a negative impact to the economy.” Other parts of the government – particularly the revenue department, which saw airtime VAT collections drop by 37% in Q4 2010 – are not so blasé, and an inter-ministerial committee is being convened to study the impact of low tariffs.

 

But if inter-ministerial committees in Kenya move as slowly as those on the rest of the planet, Kenyan consumers should be able to enjoy current low rates for a good long time.

 

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*Strategy Analytics’ Teligen group provides detailed tariff information on dozens of countries, including Kenya, South Africa, and Egypt.

 

 

Update 7 March 2011. At least one senior regulator, Dr Bitange Ndemo, who heads the Ministry of Information and Communications, has come out in favor of price floors.  On the other hand, Prime Minister Raila Odinga was quoted a couple of weeks ago saying he thought a price war would be beneficial.  As I say, this could take a while to sort out.

 

 


January 26, 2011 19:47 telliott

From a state of some talk and little action a few years ago, in the last month or so tower sharing has become hot in African mobile communications:

  • Millicom announced in December 2010 that its subsidiaries in the Democratic Republic of Congo and Tanzania will sell 729 and 1,020 towers, respectively, to local units of Helios Towers Africa. Millicom will get $125 million in cash. Earlier last year, Millicom sold 750 of its towers in Ghana to Helios Towers Ghana.
  • In Nigeria, CDMA operator Starcomm is selling 80% of its towers to Swap Technologies and Telecoms, a Nigerian co-location and managed services provider. 
  • MTN Ghana is divesting up to 1,876 towers to a new entity, TowerCo Ghana, 51% of which will be owned by American Tower, with MTN taking the other 49%. American Tower is paying $218 million for its interest. 

The trend is interesting, but even more interesting is one of the key players. Who is Helios Towers?

We're glad you asked. Helios Towers Africa (HTA) was created by Helios Investment Partners (HIP), a London-based private equity firm that invests in Africa. HIP has some serious money partnering with it in HTA:

  • The World Bank's International Finance Corporation (IFC) made $250 million available to Helios Towers Nigeria when it was starting up in 2005, and recently put another $25 million in equity into HTA.

  • In 2009 HTA got $350 million from Soros Strategic Partners, Albright Capital Management, and RIT Capital Partners, organizations with some fairly hefty global cred. Whatever you think of his politics, George Soros is no dope, and Madeleine Albright was one of the sharper knives in the State Department drawer. The R in RIT stands for "Rothschild" and over the last three centuries the Rothschilds have probably made more good decisions than bad. (Backing Wellington against Napoleon - smart!)

Helios looks to become a serious player in African telecomms infrastructure and related fields. HTA just hired Inder Bajaj as CEO; Bajaj was formerly CEO of Reliance Infratel, a major force in the Indian third-party infrastructure business. And among its other recent investments, HIP just acquired a controlling interest in Interswitch, a Nigerian electronic payments processor with a presence in mobile payments.

 

It may not need repeating, but maybe it does: the development of Africa is not just about aid. In communications, people who are a lot better with money than I am think it's about investment.

 

 

For more on the topic, see "Mobile Infrastructure Sharing in Emerging Markets" March 2010.


December 22, 2010 22:12 telliott

In late November Google announced its participation in the final pre-launch funding round for O3b, a satellite network backed by SES and intended to provide broadband access to the developing world. The name refers to the “other 3 billion” – those of the world’s population without broadband connectivity – and the plan is to launch a constellation of Medium Earth Orbit (MEO) satellites that will provide low latency broadband to the area roughly between 45° N and 45° S.

Google was one of the founding backers of O3b, back in 2008, when it confidently expected to have its satellites in orbit by 2010. The first launch is now scheduled for 2012.

I mention this slipped schedule not to be snarky – I’ve missed the occasional deadline and so have you – but to recall the problems of a previous bold satellite venture, the Iridium system. Iridium was going to provide seamless international mobile coverage to business travelers, who would need only one phone and one phone number around the world.

  • This was a great idea in the late 1980s and early 1990s when planning for the system started. A lot less great in 1998 when Iridium finally went commercial: vastly increased GSM coverage and global roaming that actually worked took a lot of value out of the Iridium value proposition.

Will this happen to O3b? Not necessarily, but the global broadband gap is narrowing.

  • Until recently, the African continent was virtually cut off from the global Internet. Now, a frenzy of submarine cable building has people seriously talking about a repeat of the Great Atlantic Bandwidth Glut. True, this only means great connectivity at the landing points; getting bandwidth 500 km inland will be a challenge for a while – and an opportunity for O3b.

africa-connectivity.png

  • 3G service is growing in emerging markets, and is frequently used as a broadband access technology. Coverage is still limited, of course, and is largely unavailable outside urban areas.

O3B promotes the potential of its service as a backhaul technology, and in this it may find more traction than it does as an access method. There are complications, of course. Among other things, the fact that MEO satellites are not geostationary means that any uplink has to have active tracking antennas and some way of handling satellite to satellite handoffs.

And that, as my grandfather said about the automatic transmission, is a lot of stuff to go wrong.


November 25, 2010 04:11 telliott

On the occasion of America’s great festival of consumption and the official start of the riot of gift buying it seems appropriate to pause for a moment to consider Sharing.

I’m not talking about the last piece of pecan pie or the game controller. I refer to network sharing, which is on my mind because of a couple of recent stories:

  • A Bloomberg report last week mooting interest on Ericsson’s part in owning networks and providing capacity to multiple operators, with Africa mentioned as a possible target area.
  • A report in the Business Daily (Nairobi) indicating that Kenya was planning not to issue LTE licenses to private operators but instead create a public-private partnership to own and operate the network, leasing capacity to all service providers.

Africa has had some experience with infrastructure sharing already, and the pace may be picking up: American Towers just purchased 3,200 towers from Cell C, intending to lease back tower capacity to Cell C and provide smaller operators access to a national footprint. But what Ericsson and the Kenyan government are talking about goes a step beyond that, into a business model where every operator is a MVNO. Worried about becoming a dumb pipe? – forget it. We’ll be the pipe.

This model has attractions for the developing world. For one thing, it gets around the difficulty that many operators have in disengaging from the expensive arms race of network coverage. And it would probably speed rural development.

But it doesn’t change the fact that it will cost a lot of money to provide Africa with mobile infrastructure, and it doesn’t create that money. Both the Ericsson and Kenya proposals – sketchy as they are at this point – include unnamed partners who are presumably putting up some or all of the capital: Valter D’Avino, Ericcson’s VP of managed services, characterized the endeavor as “Ericsson plus a financial company,” and the private half of Kenya’s “public-private partnership” is likely to be asked to put up some cash.

So the question then is – and I apologize for the lack of holiday spirit – “What’s in it for me if I’m the money guy?” Governments may be able to justify infrastructure investment on the basis of business development; Ericsson obviously would see ongoing revenue from network management and equipment sales. Making the case for private investment in African mobile infrastructure may be a bit more challenging.


October 31, 2010 15:10 telliott

The Legatum Center at MIT put on a conference last week on entrepreneurship in emerging markets. I’m not overly optimistic about the planet’s prospects, but I left more hopeful than I came: mix a lot of creative energy with good technology and a sense of purpose, and as a species we just might contrive to live long and prosper.

A case in point is Sproxil, a Nigerian start-up which presented its method for using scratch-off labels and SMS to ensure the legitimacy of a drug at the point of sale. Drug counterfeiting is a huge problem in the developing world. Given desperate need and loose regulatory oversight, it should not be surprising that there is a major business in supplying counterfeit or substandard drugs to pharmacies and other outlets in Asia and Africa.

  • Just how major is difficult to say, as with most illegal activities, but in 2009 Nigeria’s food and drug regulator estimated that 17% of the drugs sold in the country were counterfeit. A Nigerian audience member at Sproxil’s presentation gave anecdotal confirmation: in his section of Lagos, knowledgeable people get prescription drugs from only one pharmacy, preferring it even to hospital dispensaries, because it is known to deal only in legitimate product. 
  • Of course, the cost is not just monetary. Sproxil’s CEO, Ashifi Gogo, cited an International Policy Network estimate of 700,000 annual deaths due to counterfeit tuberculosis and malaria drugs.

Sproxil works with pharmaceutical manufacturers to place a unique identifying code in a scratch-off label on each package. At the point of purchase, the customer scratches off the label covering, sends a free SMS with the code to Sproxil, which checks the submitted code against its database and sends a return text indicating whether or not the drug is legitimate.

Be that as it may, the fact remains that a very simple mobile technology can now be used in a straightforward manner to address a serious problem that affects the well-being of millions. As I say, I’m marginally more hopeful.