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Wednesday, March 21, 2007

TN4B: How Mobile Phone Companies Have Cracked the BOP Code

By Al Hammond

TN4B Mexico Spending SharesIt is still not widely appreciated that the rapid spread of mobile telephony, and the only slightly slower spread of Internet services, have over the past 6 years transformed the lives of more people at the BOP than all of the world?s development projects together. More than 1.5 billion people in developing countries now have mobiles, and cybercaf?s even in small towns are crowded every hour they are open. This transformation has been almost entirely driven by the private sector, although development efforts played a key role in improving regulations to make it possible. The spread of ICT has empowered users?with access to livelihoods, critical market information, and other well-documented benefits?and created wealth for mobile companies.

This remarkable transformation?not yet matched in any other sector?can be attributed to two factors. First is the entrepreneurial drive of (especially) local mobile companies, who have developed and refined a pre-paid business model with voice and text messaging services available in ever-smaller units, the "sachet marketing" of ICT. The companies have also frequently developed vast networks of small resellers of their services, creating income streams for the resellers and easy availability of services for customers. They are rapidly pioneering new services, such as remittances and banking services, and perhaps before long, educational services over mobiles. Think of it as business model push.Second, however, is market pull?the insatiable demand for ICT services even at very low income levels. As the graph above shows, the share of household spending devoted to ICT rises remarkably as incomes rise?and this pattern is found in varying degrees in nearly every country for which data is available. That is what is behind the 6 million new mobile customers a month being added in India, and fairly similar comparable growth rates in China and Africa. In effect, the value of ICT services to the BOP is so high, that there is very high latent demand. Given that most rural areas do not yet have access to mobile services, there is still a lot of growth to come. That?s why large amounts of money are being spent to buy mobile companies in emerging markets when they become available.

The following is an excerpt from Chapter 3 of The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid.

The number of mobile subscribers in developing countries grew more than fivefold between 2000 and 2005 to reach nearly 1.4 billion. Growth was rapid in all regions, but fastest in Sub-Saharan Africa. Nigeria?s subscriber base grew from 37,000 to 16.8 million in just four years. Meanwhile, the Philippines? grew sixfold to 40 million. Wireless subscribers in China, India, and Brazil together now outnumber those in either the United States or the European Union.

Comparison of these numbers with the size of BOP populations suggests substantial and growing penetration of mobile phone use in the BOP, confirmed by the household surveys analyzed in this report. Industry analysts expect more than 1 billion additional mobile subscribers worldwide by 2010, with 80% of the growth in developing countries, almost entirely in BOP markets.

Increasingly, mobile phones also offer Internet services such as e-mail and Web browsing and are becoming a platform for banking and other financial services. Driven by intense competition, mobile phone manufacturers are rapidly adding new capabilities?digital photography, voice recognition, and biometric identification, to name a few. As a result, industry observers forecast, within five years the typical mobile phone will have the processing power of today?s desktop computers.
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