Let me make sure I’ve got this right: a Turkish mobile operator partly owned by Scandinavian and Russian interests is suing a South African operator in a US court over events alleged to have happened in Iran.

Yes, that seems to be correct. And suing for $4.2 billion, no less, which is more than a quarter of MTN’s 2011 revenues.

The background, in brief. In 2004 Turkcell received preliminary approval from the government of Iran to become the country’s second  mobile operator. Iran subsequently withdrew its approval from Turkcell and in 2005 awarded the franchise to MTN, in partnership with a business entity widely thought to have ties to the Iranian military. Turkcell now alleges that MTN got the license as a result of a rather spectacular program of bribery and influence peddling with such highlights as:

• Orchestrating South Africa’s abstention on three UN votes on Iran’s nuclear program
• Cash payoffs to Iranian and South African government officials amounting to some $600,000
• A promise of helicopters and other South African military equipment, in contravention of the international arms embargo

 Crikey.

Still, you may be asking what brings this to the U.S. District Court in the District of Columbia. If so, we’re glad you asked: it’s the “Alien Tort Statute”, which lay largely dormant for two centuries after George Washington signed it into law in 1789. It allows civil actions to be brought in US courts by a non-US citizen when a tort has been committed “in violation of the law of nations.”

It’s hard to see the District Court being particularly eager to open this can of worms; if nothing else, it has a pretty full docket of Americans suing Americans for things done in America. There’s a good chance it will decline to hear the case and Turkcell will be left without a venue.

But that may be cold comfort for MTN, which has already seen its stock price drop by 6% and its officers embarrassed by allegations of collaboration with the Iranian security apparatus in tracking down protesters through their call records. (In post-apartheid South Africa, this is a particularly serious accusation.)

• Even if it were tempted to do so, MTN can’t afford to simply walk away from Iran. It’s too important: about 9% of MTN’s 2011 profits came from Iran, and it is expected to account for 20% of net new subscribers in 2012. 

See “Turkcell: Moving at a consistent pace in a challenging environment” and “MTN: Sticking to Africa after Failed Bharti Deal?” 

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.

• I spent a delightful couple of weeks last fall interviewing a bunch of middle class Africans, and on that one he’s just plain wrong. It may be smaller proportionally than the Indian middle class, but it’s there, it’s growing, and it can afford both food and talk-time. (See, “The Next Hundred Million: The Middle Class Mobile Market in the Developing World” and “Tablet Prospects in Developing Countries: The Voice of the Consumer” for a discussion of the interviews.)

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?

At MWC yesterday, several emerging market operators, led by keynoter Sunil Mittal of Bharti Airtel, cited a lack of affordable smartphones as the key obstacle to growing data services and – not coincidentally – ARPU. (GSMA covers the talks here.)

Mittal called for GSMA to mount a program aimed at producing a $50 smartphone in a year.

As goals go, this is less dramatic than President Kennedy’s 1961 challenge to put a man on the moon before the end of the decade. SA’s Wireless Smartphone Strategies service projects that just under 5% of global smartphones will ship this year with a wholesale ASP under $100, so much of the heavy lifting of meeting the $50 price point has already been done. (See “Global Smartphone Sales Forecast by Price-Tier: 2003 to 2016”.)

Still, it’s ambitious. But even more ambitious would be to offer a $50 smartphone that people in developing countries would actually want to buy and use. I hate to keep beating up on the $38 Aakash tablet – actually, that’s not true: I love beating up on it – but the lesson there is that meeting a price point without providing value for money is a bad idea.

Our recent interviews with potential tablet buyers in developing countries and before that with first-time phone users clearly demonstrated that low and middle income customers are willing to accept some compromises to meet their budgets, but not every compromise. A one megapixel cameraphone might be acceptable, but don’t try to foist off some old VGA sensors just to keep the BOM down. (See “Tablet Prospects in Developing Countries: The Voice of the Consumer” and “Voices of the Next Billion: Mobile Adoption at the "Bottom of the Pyramid")

For SA’s blogging from Barcelona, click here. 

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?"

In emerging markets, some operators like Bharti Airtel and China Mobile launched their own app stores. This has given developers an opportunity to provide localized applications to operators. Some handset vendors like Nokia also focus a lot on localized app stores, but generally speaking, developers in emerging markets find operators easier to deal with as they understand local markets better than international vendors. However, in emerging markets operators have started focusing on app stores to boost their ARPUs.

Since smartphones are just 5-8% of the total installed base and less than 50% of the handsets have even GPRS capability, can app stores really be successful? 

See:  Localization is a Key to Success for App Stores in Emerging Markets

The Supreme Court of India today cancelled 122 2G licenses that were granted in 2008 mostly to new players but also to Idea Cellular and Tata Teleservices. The court has given four months to the government to auction these licenses and till then the existing operators would continue to operate, so nothing will happen to the existing subscriber base. However, it would be a major setback for the foreign operators like Etisalat and Telenor, which have made substantial investment in passive infrastructure and subscriber acquisition. For a discussion of Telenor’s entry into India, see “Telenor's India venture: Is it a misadventure?

It will be very difficult for all the operators whose licenses have been cancelled to participate in the fresh auction. Most of these companies don’t have the financial muscle to participate in the auction as any fresh auction would cost them around US$ 1-2 billion. (This is a conservative estimate as for 3G licenses in 14 circles Bharti paid around US$ 3 billion)  Even those who would participate and win after paying such a huge price would find it difficult to compete with big players like Bharti Airtel and Vodafone. So in a nutshell the court verdict would eventually result in a few operators in each of the circles; tariffs will no longer be low as there won’t be any player which can afford to play the game based on cheap tariffs after paying huge auction money.

The government and the regulator are working on an exit policy for the operators but this would not solve the problem of the foreign players. Foreign players entered Indian market with the intention to compete in the Indian market and were here to stay and expand their businesses. The court verdict has put them in a Catch 22 situation. If they decide to exit, they will lose out a lot in terms of subscriber base and investment made, but if they don’t , they will have to shell out huge amounts to get these licenses back again. Essentially this would mean going back to the drawing board and chalking out a new strategy to get returns on the investments. At present the focus of these players is using cheaper tariffs to add new subscribers in smaller towns and villages, but the ROI demands of new license fees mean they would have to focus on high ARPU customers even though they don’t have 3G licenses, which is definitely an uphill task. 

- Rahul Gupta

See also, “Low Income Indian Mobile User Survey Analysis: Basic Services”  

There are many versions of what is going on with India’s much-heralded Aakash educational tablet, announced last fall with a price tag of $38 before taxes and support.

• In one, which seems to have begun in a story in India Today a couple of weeks ago, the Aakash is a dismal failure, subject of so many user complaints that the sponsoring Ministry of Human Resource Development is contemplating refusing to pay DataWind, the Canadian manufacturer.
• Not so, says Sunit Singh Tuli, CEO of DataWind in a story in “India RealTime”, a blog of the Indian Wall Street Journal. The project is on track, an improved version is in the works, and the customer is perfectly happy.
• No so fast, shouts somewhat hysterical “True Indian,” posting an anonymous comment to the India RealTime story: “Suneet Singh Tuli is a known fraud & a liar! Check his track record and the state of his companies. The tablet – Aakash – does not work as has been known in various reports by independent agencies yet he says the tablet is approved by International agencies – WHICH ONE APPROVED IT?” [Disclaimer: Strategy Analytics is merely quoting this posting; we do not endorse its characterization of Mr. Tuli.]
• To further roil the already murky waters, a story in Light Reading India last week says that IIT (Rajasthan), which was apparently involved in the procurement process, asked DataWind to implement  changes and improvements that would – according to DataWind – bring the cost up to something like $2,000. The story also claims that DataWind is discussing a deal with Reliance Industries to produce a sub-$100 commercial version of the Aakash.

This may be one of those things that an outsider has no hope of sorting out, but that may not even be the point. The key issue that the Aakash concept raises is whether there is some floor level of functionality that must be achieved for a device to be useful, even in rural Indian schools.

I personally believe there is, and if the Indian government wants my advice – which so far they have been limping along without – they’d be better off spending $38 x 100,000 on hiring more teachers, and wait until there are affordable tablets with great battery life, Wi-Fi and WLAN connectivity, and good screens.  (For my initial take on the Aakash, see “Aakash $38 Tablet is Not the Game Changer in Emerging Markets - But the Game will Change”.)

Few laws are more powerful than the law of unintended consequences. Change anything in a complex system – or even a relatively simple system – and something unexpected and possibly unwanted is almost bound to happen.

What could be better and more straightforward than giving solar chargers to village malaria workers in rural Cambodia? By keeping their phones charged they can send an SMS immediately on learning of a new case, rather than waiting a month or more for paper records to be collected centrally. This allows for the tracking of potential outbreaks in near real time, as well as better management of anti-malarial drug stocks.  

Prior to the solar chargers, the malaria workers, like the other villagers of Snay Anchit, got car batteries charged by the owner of a generator driven by an internal combustion engine, who was paid for the service. The car batteries charged phones and lit lamps in the village, which has no grid electricity.

The chargers, the result of a collaboration of the Cambodian government, the World Health Organization, and the Malaria Consortium .  are also sufficient to power a small lamp, bringing light to the malaria workers’ homes.

What’s not to like?

Substituting green energy for hydrocarbon-based power – not to mention forgoing lugging car batteries around – would seem like a great idea. Unless you’re the guy who owns the generator, who suddenly sees his income cut*. Thanks a lot, WHO. Or you’re a villager who isn’t a malaria worker – which is presumably most of them. You’ve got to keep on lugging your battery and paying to charge it while your neighbor enjoys a donated solar panel. And what happens when a malaria worker sets up as a competing charging station, selling excess capacity?

These are not necessarily reasons not to distribute solar chargers if it helps eradicate malaria. But they are reasons to consider carefully the ramifications of even the best sounding ideas.

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* By how much is unclear. I have no hard data on what village phone chargers get for their services. One article on a solar program in Tanzania suggests a typical fee is about US$0.30 for a charge. Assuming $0.30 cents for one battery charge a week, which is probably conservative, the generator owner would lose $15 per year for every foregone customer. Cambodia’s per capita GDP is around $900, so this is non-trivial. More qualitatively, is it a great idea to undercut developing country entrepreneurs? 

For a view of some other NGO mobile activities in developing countries, see Second Screen Prospects in Developing Countries: The NGO Market

I was privileged to be speaking at a Mobile Payments conference last week – particularly privileged as it was in Miami, which was a good thirty degrees (F) warmer than home. The speaker before my panel was Marcelo Scaglia, from Banamex in Mexico City, who made one of the most sensible points I have heard recently in the mobile money space.

I’m paraphrasing here, but he observed that we often think there are two kinds of people in the world - “the  banked” and “the unbanked” – and that many feel that a long term goal of mobile payments schemes is to take the latter and turn them into the former. Actually, he says, it might be more useful to think of an area between the banked and the unbanked. In this space, consumers may use a range of financial services from banks or from others without necessarily having the kind of permanent and pervasive relationship that we usually associate with the “banked” condition.

There may be an evolutionary path from sending small remittances via mobile payments to having checking, savings, overdraft protection, a home equity line of credit, and an unending string of annoying ads for college loans and retirement planning services. This path may exist, but it is not likely to be heavily traveled.

More common, I think, would be a path where the previously un-banked in developing countries avail themselves of funds storage in the mobile payments system, perhaps get and pay off occasional micro-loans, receive payment electronically, and get some basic financial education, all without necessarily having what we in the industrialized middle class think of as “my bank.”

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And it’s probably because I watch too much television, but does anyone else out there hear the phrase “unbanked” and think of “undead”? No? OK, sorry I mentioned it. 

One of my favorite ever headlines from the technology press was in Wired almost a decade ago: “Charities Say No to Obsolete Crap.”

The story was about the reluctance of charitable organizations to take outdated computers, even as gifts, but the principle is broader than that: just because someone doesn’t have a lot of disposable income, it doesn’t mean they’ll accept any old junk as long as it’s free – or very cheap.

Nokia’s new line of Asha handsets, announced this week, shows a firm belief in this principle. The lowest end model in the line, the QWERTY Asha 200, has an estimated retail price of EUR 60 excluding taxes and subsidies, and the line extends to the Asha  303, with a capacitive touch screen and a price tag of EUR 115.

Clearly these aren’t the cheapest phone you can find in the developing world. They’re not even the cheapest Nokia phones. But that’s not their point. The Asha line (the name is derived from Hindi for “hope”) is built on the belief – which I share – that there are a lot of people in developing countries who are willing to stretch financially to get things that will make a genuine difference to their lives.

An objection that I’ve heard raised at this point goes something like “If you can make phone calls and send texts on a EUR 20 Shenzhen Special, what ‘genuine difference’ is that extra EUR 40 going to buy?”

To that objection, two rejoinders:

1)      From what I could tell, the Asha phones are solidly built. They will be making calls and sending texts long after cheaper phones have been recycled for parts.

2)      But rejoinder #1 is just economics: total cost of ownership. It may be true, but most people don’t really think that way. The rejoinder that is really at the heart of the business case for Asha is this: people who can find a way to afford a phone that feels better in the hand, that looks better when they show it to friends, that has a better speaker and better graphics, are going to feel that their money was well spent.

And who am I to say it wasn’t? Nobody in the North who spends the Apple premium to get an iPhone is doing so from some utilitarian calculus of price/performance over time. Why should we apply different standards to people in the South?