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 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.

 

 


February 3, 2011 16:56 telliott

News reports this morning indicated that the Egyptian government used Vodafone Egypt’s network to send out unsigned and unattributed text messages urging support for the government. There is no information at this time about whether the Mobinil and Etisalat networks were used for a similar purpose.

Wired’s Danger Room characterizes this as a “hack” but Vodafone’s official statement, while strongly protesting the government’s actions, indicates that the Emergency Powers provisions of Egypt’s Telecoms Act oblige the mobile operators to send messages: “we do not have the ability to respond to the authorities on their content.” 

This raises a number of issues about the relationships between privately run communications networks and the national governments that license them.

  • When push comes to shove, private companies who want to stay in business in a country will do what the government tells them to do. To expect otherwise is naïve. However, between Push and Shove there is generally a large gray area – this is the area where RIM and various governments are finding themselves – and there can be an opportunity to work out compromises. The more symmetrical the power relationship, the more likely this is: yes, RIM needs the Indian government, but the Indian government also needs RIM.
  • For all the hyperventilating about “Twitter Revolutions” the Egyptian situation reminds us all that The Cloud rests firmly on physical infrastructure with more or less centralized points of control with plugs that can ultimately be pulled. Since Egypt’s mobile voice and data services were shut off by government command for varying periods of time, the demonstrations have relied on some very old technology: word of mouth, leaflets, and bullhorns. So if you’re planning political action, don’t put that photocopier up on eBay just yet.

 

Update 4 Feb 2011. France Telecom has indicated that Mobinil was required to send SMS to its customers by the Egyptian Army.


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.


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.


October 26, 2009 22:10 telliott
The hyper-optimism of the African mobile “gold rush” seems to have calmed down. This is due partly to the global financial situation, but more to the realization that while Africa may in fact be the last place where lots of people don’t yet have mobile phones, that doesn’t mean it’s going to be easy or profitable to try to put them in their hands. This realization is inevitably leading to entrances and exits from the continent. A lot of press attention recently has been given to some of the more colorful of these possible re-alignments, notably the prospective sale of some or all of Zain to … well, to someone, and the twice-failed merger of MTN and Bharti. (On the former see “Zain: Leaving Africa So Soon?” and on the latter, see “MTN: Sticking to Africa After Failed Bharti Deal?” two recent publications from Strategy Analytics’ Emerging Markets Communications Strategies service.) Meantime, somewhat more quietly, Vodafone has established a strong presence in Africa, both directly and through its 65% interest in South Africa’s Vodacom. We would not be at all surprised if Vodafone in the next year or two takes advantage of a down market to acquire some new properties in Africa. Currently, the major regional market conspicuously absent from its portfolio is Nigeria, where Vodacom passed up an opportunity to enter the market in 2004. Vodafone CEO Vittorio Colao has recently expressed interest in Nigeria, describing it as “a prized and valuable market that we will be glad to operate in." In short, we should be looking for more red on the African map.
Tom Elliott