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.

February 21, 2012 18:54 telliott

In the past year a number of infrastructure sharing deals and outsourcing of network management from firms like Ericsson, Nokia Siemens Networks and Huawei have been announced across a wide spectrum of developing countries. For operators seeking to reduce expenditures as ARPUs relentlessly decline, these various techniques for cost sharing and organizational optimization can be very attractive. But is it also possible that such practices lower the barriers to entry or to expansion to the extent that competition in a given market is effectively enhanced?

 

See "Can Outsourcing, Infrastructure Sharing and Managed Services Lead to More Competition?"


October 2, 2011 17:51 telliott

Strategy Analytics’ Teligen service recently highlighted the fact that Kenya has by far the lowest mobile rates in Africa, three times lower than neighboring Uganda.

I spent most of last week in Kenya conducting research. When I landed I bought what I thought was a modest amount of airtime from Safaricom – about US$14 – but I failed miserably to exhaust it, even making multiple calls back to the US. So yes, it really is pretty cheap to use a mobile phone in Kenya.

But that may be changing, at least a little. On September 30, having telegraphed the move for some time, Safaricom raised all its domestic voice tariffs by 1 shilling (KES) per minute (1 KES equals roughly 0.01 USD at the current exchange rate) to 4 KES on-net/5 KES off-net.

With market share just north of 70% and the admirably sticky M-PESA mobile funds transfer service – enthusiastically endorsed by 100% of the taxi drivers I spoke with – Safaricom can probably make this rate hike work.   

  •  The actions of other operators will be interesting to see. The local Essar operator, yu, recently launched free voice calling during daytime hours, so they don’t exactly appear to be in a revenue maximizing frame of mind.

Safaricom has been arguing for some time that rates are unsustainably low, and certainly insufficient to expand coverage further into rural areas, as the government would like it to do. But bringing the issue to a head right now is the soaring inflation in the Kenyan economy, as witnessed by the dramatic decline in the value of the shilling versus the US dollar.

The weakening shilling poses a number of problems for Kenyan mobile operators, not least of which is the impact on the price of diesel fuel for base station generators. A moderately sized generator could easily burn 100-150 litres of fuel a day, which means that the 26% decline in the value of the shilling since the beginning of the year adds a great deal to operators’ fuel bills, independently of movement in the global price of oil. 

  • Less than 20% of the Kenyan population has access to grid power, and those that do find that it is not always reliable – buildings seeking tenants routinely advertise their backup power capability. So it is no surprise that about a quarter of Safaricom’s base stations are entirely diesel powered, with others having diesel backup.

Even with Safaricom’s rate hike, Kenya will likely have the lowest costs on the continent for some time. But next time I might be able to burn through $14 in a week of international calling.

 

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See "Renewable Energy Fuels Rural Network Expansion in Pakistan and Elsewhere" November 2009


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.

 

 


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.