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.
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?