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.

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.


October 12, 2010 04:10 David Kerr

sa photo dk

At CTIA in San Francisco last week, away from the fanfare around LTE rollouts and the next dozen tablet devices (ok, I exaggerate a little), Sprint had an announcement which will have significantly higher impact on mobile broadband adoption and revenues: Sprint ID. 

Sprint ID promises to up the ante on personalization and ease current feature phone users into the smart phone ranks.

Sprint ID offers instant personalization along key themes/packs where the operator has done the heavy lifting of identifying and group related applications of interest to different persona from wallpaper to ringtones to apps. While the one click marketing line is not quite matched by reality given pesky little things like accepting terms and conditions etc, Sprint ID is a significant breakthrough in my opinion as:

  • it broadens the market appeal of Smart phones to current feature phones users with a simple to understand offer in a range of device price points including the critical $49 and $99 levels.
  • it tackles one of the biggest weakness of all app stores: discoverability of content and simple personalization.

Three handsets were featured at launch of Sprint ID: Sanyo Zio™, Samsung Transform™, LG Optimus S™. These three devices cover key price points in the Sprint portfolio and provide customers with a range of form factors, industrial design and brand to meet their tastes. Interesting to note that both LG and Sanyo retain the right to put their own packs on their handsets as well. This is a big win for LG as its Optimus S™ will be available for under $50 with contract giving the vendor a much needed boost in the smartphone space. Samsung meanwhile continues to shine at Sprint occupying the lucrative $149 spot with its Transform™. All three devices of course require a Sprint Everything Data plan.

However, for me the more significant impact is that operators and oems are finally realizing that customers don’t buy phones or services or apps… what they really want are positive experiences

… be that socially connected, sports, education, health and fitness, fashion etc. This is something that our User Experience team has been evangelizing for the last 7+ years. Whether its 80k apps on Android or 250k on Apple store or 10K on RIM, one common experience has been exasperation at the huge waste of time, energy and emotions in finding ANYTHING!!! Which happens first, eyes glazing over or fingers cramping with so much scrolling? Either way the net result is often a disappointing experience which the early smart phone coolaid drinkers have learned to live with.

Newbies to the smart phone arena, will certainly have less tolerance and spend less time to personalize their device and enable applications. Sprint ID is well tailored to the next wave who are taking tentative steps into the smart phone space

 

David Kerr

dkerr@strategyanalytics.com


September 23, 2010 22:09 David Kerr

September 23, 2010

While there has understandably been a lot of attention given to consumer apps post iPhone and the plethora of application stores that have emerged, business mobility and enterprise mobility offer huge potential from horizontal to vertical applications and from smartphones to iPads and tablets to superphones.

In both NA and W. Europe, business customers account for under 30% of users but are the dominant streams of both revenue and profits for operators. On the device side, premium priced models from RIM, Nokia, and Microsoft Mobile licensees as well as the iPhone have long been key drivers of profits in a market where low single digit margins are the norm.  The explosion of smartphone choices has led to the battle ground moving beyond the corner office, to other executive and now increasingly the midlevel manager.

With a new range of devices competing for space in the corporate market, the issue of corporate versus individual liable has become an increasing priority for IT decision makers. Add on the complexity of managing an expanding list of OS (Android, iPhone, Windows Mobile, Symbian, Palm, MeeGo, Bada from Samsung) and the growing importance of mobile portable devices with access behind the firewall and one can already feel a corporate migraine forming…. And that’s before we even discuss device management, mobility policy, device retirement etc. etc.

I am looking forward to CTIA Fall (San Francisco October 5-7) and in particular to the Enterprise Mobility Boot Camp moderated by Philippe Winthrop of the Enterprise Mobility Foundation. The boot camp spread over two days will address many of the issue listed above with our own Andy Brown featured in an analyst roundtable on October 6th.  I look forward to meeting you there. Don’t hesitate to contact Philippe for passes to this the deep dive enterprise mobility event.

David Kerr

David Kerr
Snr. VP - Global Wireless Practice
Tel: +1 617 614 0720
Mob: +1 262 271 8974


September 21, 2010 02:09 telliott

The mobile market potential of the “bottom of the pyramid” has rightly aroused a lot of interest – including some from Strategy Analytics. The ability to profitably service the huge untapped market of the poor and rural will have a major effect on the long term emerging market prospects of operators like Orange, Vodafone, and Telenor, device manufacturers like Huawei and LG, and infrastructure vendors like NSN, Alcatel Lucent, and Ericsson.

But let’s not forget about the developing world’s middle class, which may number as many as 2.6 billion people. It is middle class consumers who, having some measure of economic security, are in a position to stretch just a little on their handset purchases, or sign up for that slightly frivolous entertainment service. The revenue from each of those stretches, times 2.6 billion, will help fund rural roll-outs and maybe, just maybe, add to the bottom line.

The 2.6 billion comes from Martin Revallion, an economist at the World Bank, who estimated the number of people in developing countries in 2005 whose daily consumption was between $2 and $13 a day, measured on a Purchasing Power Parity basis.

Now, if you are reading this in an industrialized Western nation you might be saying “$13 a day is my idea of poor, not middle class! And $2 a day is very poor.” And in your context you would be right, because that range does not describe the middle class where you live. (In fact, $13 a day was the US poverty line in 2005, which Revallion somewhat arbitrarily chose as his upper bound. $2 was the average officially reported poverty line in 70 developing countries he looked at.)  

The question is whether daily per capita consumption of $2-$13 supports a middle class life in the developing world. This in turn raises the question of what is “a middle class life,” which even those of us who live them find difficult to define. A Middle Class (Perhaps) Shopkeeper in Liberia A Middle Class (Perhaps) Shopkeeper in Liberia

Fortunately, sociological precision is not always required to gauge mobile demand. The key element for our purposes is whether in the local context there is enough of a middle class sense of security at $2 a day – or $3 or $7 or some other number – to free up discretionary spending for non-basic communications services. This is a course of research that we will be pursuing in the next year, and we would welcome comments and suggestions.


August 25, 2010 21:08 telliott

Stay in any business long enough, particularly a growing one, and it’s easy to start thinking that your product or service is the key to human happiness. Automobiles in the early days were going to bring about freedom and the perfection of democracy. Pesticides would eradicate global hunger. Electricity from nuclear power was going to be too cheap to meter.

And let’s face it, we in mobile communications are the same way. Just put enough phones in enough hands and markets will become efficient, families will stay connected, dictatorships will topple, and the Age of Aquarius will finally dawn.

Looking at the developing world it is particularly easy to fall into this mindset: having a mobile phone really can make a tremendous difference in quality of life. But hold on a minute, says ”Mobile Phones and Economic Development in Africa,” a forthcoming study by economists Jenny Aker of Tufts and Isaac Mbiti of Southern Methodist University. Before we assume that m-development, m-health, m-whatever is the only sensible thing to promote, let’s take a cold-eyed look at the evidence.

  • Studies that have produced much cited relationships between mobile penetration and GDP growth – e.g. a 10% increase in mobile penetration is associated with a 0.6% increase in growth rate – do not credibly establish that mobile penetration causes GDP growth, only that the two are associated. They may both be results of some other cause, or the relationship could be reversed: make a country richer and more people are likely to have mobile phones.
  • The use of mobile phones by NGOs to distribute cash is appealing and reduces the NGO’s overhead, but may transfer risk and cost to the beneficiary by forcing them to travel to a retail agent to get their cash.
  •  According to a 2009 FinAcess study they cite, M-Pesa does not primarily serve the unbanked, as 72% of users have a bank account.

Aker and Mbiti are certainly not arguing against encouraging mobile phone use in Africa, only against the idea that it is “the ‘silver bullet’ for development in sub-Saharan Africa.” It doesn’t benefit a millet farmer much to know the price of grain in a market to which there is no decent road.


July 28, 2010 02:07 telliott

For some time now, a dominant cultural meme – a word I use experimentally and won’t repeat, since it evoked a fierce gag reflex as I typed it – holds that there will be more of everything in the future, especially people, and that stuff will cost more, unless it’s digital hardware in which case it will cost less and there will be way more of it.

Real estate crashes and the more serious specter of deflation suggest that in fact stuff may not always cost more. And according to UN demographers, while global population will continue to rise for some time, there are places where population is shrinking.

This sounds like good news, considering global warming etc., but it may not be, if your business depends on selling more stuff next year than you did this year. Fewer customers just makes your job harder. And if that shrinking customer base already has a lot of your stuff, it’s harder still.

Consider the situation in the developing world, as shown in the chart below, which plots mobile subscription penetration against projected population growth for 135 countries. (I ran out of label space in the middle; email me if you’re curious and I’ll send you the whole list.) pop-vs-pen.jpg

Rapidly growing population and low mobile penetration (lower right of the chart) does not necessarily mean a country is a terrific opportunity. Afghanistan, for example, has some issues as a business environment. But the scenario of high mobile penetration and shrinking population (upper left) raises a unique set of challenges to growth.

Clearly, penetration on a user basis in these countries is lower than 100%; subscription penetration is particularly high in Russia and elsewhere because of multiple SIM and multiple device ownership. So it is not the case that everybody who wants a mobile phone already has one. But an awful lot of them do. And a shrinking population means fewer first time buyers are entering the market.

Clearly, the focus for an operator in a developing country with high penetration and low or negative population growth needs to be different than in the more usual case of emerging markets with rapid population growth and low penetration. Loyalty and churn reduction become critical, as does revenue enhancement through incremental service offerings, and in particular, cold-eyed and ruthless cost justification of network expansion. If you build it, they won’t come if they’re just not there.


July 7, 2010 11:07 rgupta

Qualcomm stunned many by participating in India’s recent wireless broadband auctions. It bagged licenses in 4 circles including metros Delhi and Mumbai. (The other operator which got licenses in these two circles is Reliance Industries (RIL). Reliance got the broadband license for all the circles in India). Qualcomm has decided to tie-up with some other operator for TD-LTE based broadband services in India.  It is a very strategic move by Qualcomm to push TD-LTE in India. The only competition for TD-LTE in India is WiMAX and the main competitor for Qualcomm would be RIL, if the latter opts for WiMAX, which looks very unlikely.   Broadband penetration in India is less than 1% so there is a huge untapped population that can be targeted. But operators will initially target metro and ‘A’ category circles as these are the circles where demand for broadband is high. Metro circles in particular will be the target as most high ARPU customers live there. Since only Qualcomm and RIL have licenses to operate in Delhi and Mumbai, they have an advantage.  It makes sense for RIL as well to opt for TD-LTE as the operators, which have got 3G licenses would like to tie-up with the TD-LTE operator rather than going for WiMAX due to compatibility issues. And if RIL goes for TD-LTE then WiMAX will take a backseat in India as other operators too are likely to follow RIL. Tikona, another operator, which got licenses in five circles has already said that it would go the RIL way on technology.     So it looks like that initially Qualcomm has an edge over others in BWA play in India. It will not operate directly but will be benefitted hugely by the royalty on technology and chipsets (TD-LTE). The only player that can be the threat to Qualcomm on chipset side could be Samsung. If Samsung comes out, which is very likely with TD-LTE chipsets, the competition will become stiffer. 

The loser here will be WiMAX and Intel in particular. Operators are not quite upbeat about WiMAX. If Qualcomm manages to successfully roll-out TD-LTE devices and gets major BWA operators on its side, then it could be an end game for WiMAX in India

Rahul Gupta

June 22, 2010 22:06 telliott

For all the talk of mergers and buy-outs, entrances and exits, little has actually changed recently in mobile communications in North Africa.

The rancorous struggle between France Telecom and Orascom for control of Mobinil seemed destined to end in one party or the other beating an ignominious retreat from Egypt. Instead, after closed door meetings and $300 million changing hands, the two will continue to share control of Mobinil. Business goes on exactly as before.

  • No, I tell a lie: FT can consolidate 100% of Mobinil’s revenues, versus 70% before the deal, which would have added 1% to operating revenues in 2009. Orascom has an option to sell out in a year or so, but then FT once had a court order to buy them out and look how far that got them.
  • Elsewhere in Egypt, Vodafone indicated that its 55% stake in Vodafone Egypt might be available. This aroused interest from Telecom Egypt, the state-controlled wireline operator that owns the other 45%, but it turns out they only wanted to get a controlling interest, not take the whole thing off Vodafone’s hands. Talks terminated.
  • ­But not to worry. Others were interested. Like Orascom. That’s right – the Orascom that still owns a big chunk of Vodafone Egypt’s largest competitor. Even a liberal interpretation of anti-trust might have some issues with that deal, but it had a certain superficial plausibility, particularly if Orascom left Mobinil and wanted to do something productive with all the cash it was to get from MTN for the sale of Djezzy in Algeria.
  • Not so fast!, says the Algerian government, already miffed at Orascom. (See “Orascom: Growing, Shrinking, or Becoming Something Different.”) “Algeria refuses to continue being a market where other countries sell their products” according to a member of the governing FLN party. So South African MTN isn’t welcome. If Djezzy is sold, it will be to the Algerian government. Just don’t expect that to happen quickly or to produce mountains of cash for Orascom to buy out Vodafone Egypt.

Beyond the obvious – “it ain’t over til it’s over” – what’s the message here? With a population of 162 million, relatively high personal incomes, and a subscription penetration around 80%, North Africa’s mobile markets are worth fighting over. We expect continued interest and eventually some done deals. After all, Orange Tunisie finally launched as Tunisia’s third operator, after quietly plugging away for a year or so.