This post is the second in a five part series on a radical new approach to scaling BoP business models, what we call a transformative sector strategy. In this segment, I tell the story of a rural connectivity pilot project; an example of this new model for development in action.

A Last Mile Model for Rural Connectivity

Son Tay commune, Quang Ngai Province [1]. I was sitting across a table in a remote rural outpost of Vietnam, negotiating (via a translator) with the manager of a local radio station about access to his tower. He asked a series of technical questions and seemed satisfied with the answers, but then he wondered aloud: "Can we get Internet access here?" He didn't just want it for the radio station, it emerged, but for the surrounding small community - even though nobody there yet owned a computer. The manager understood that internet access could help transform their opportunities. And when we agreed to mount a small antenna to serve the community, the tower was ours.

The negotiation was part of a two year long process [2] to pilot a novel approach to rural connectivity. It involved building an advanced, broadband network in three communes (groups of villages) in a very poor province in central Vietnam to provide Internet-based phone service and Internet access. Quang Ngai Province has no Internet access for its million-plus population outside of the provincial capital, and phone ownership is about 3 percent.

But the province does have an AUSAID-funded rural development project (RUDEP) [3] that had built trust by doubling farmer's incomes in many communes, and optical fiber to every district capital (owned by the national electric utility, EVN, which also owns a mobile phone company, EVN Telecom). Ultimately all of these became partners in the effort, as did USAID's Last Mile Initiative, Intel and other equipment providers.

Why Advanced Technology Is Worth More To the Poor

The technology involved is both familiar and yet amazing. It's WiFi [4], just like the wireless unit in your home or the hotspot at Starbucks. Yet this is also advanced WiFi mesh that can provide service several kilometers from the hot spot, works autonomously to maintain signal quality and routes traffic in the most efficient way. Another version of advanced WiFi technology can also send lots of data - the voice traffic and Internet data from dozens of villages, up to 100 Mbits per second-over distances of 50 kilometers, so that even remote areas can be connected (over several links if necessary) to high speed modern networks. The phones involved would be WiFi-enabled mobile phones - in effect, low-cost smart phones - that worked on either the WiFi network (in the commune) or the mobile network (in town).

Why build such an advanced, cutting-edge network - not easy to find even in affluent areas of the United States - in a remote, rural place like central Vietnam? Because it also very inexpensive and enables services that low-income, rural people need, in ways that are very beneficial to those users, but that are also affordable and profitable to the service provider - here, EVN Telecom, a mobile telephone company.

Our analysis [4], based on actual costs from the pilot in Vietnam, suggests that providing rural coverage with this technology would be dramatically less costly to the telco. Compared to building conventional mobile networks and their expensive cell towers, this new approach would lower the investment required by 80 percent and would lower network operating costs by at least 50 percent, and yet would likely expand the number of actual customers far beyond the modest penetration typical for mobile phones in BoP communities.

Plus the telco can sell Internet access to cybercafés, schools, government offices, and small businesses, over the same network. From the perspective of the users, it also looks like a good deal, because local calls - about half of normal calling patterns in rural areas - would be free. In central Vietnam, free local calling would save many a five kilometer walk to commune headquarters and could be a good reason to buy a phone. Voice-enabled information services in local dialects - how to raise pigs, for example, knowledge that can lead to prosperity in Quang Ngai - and, fairly soon, mobile phone banking, a critically-needed service in rural areas, would likely become available.

Catalyzing a Transformation

If rural areas don't get built out by the mobile companies, they will lose out on the huge benefits of mobile phone banking. And if mobile companies continue to base their expansion plans on familiar cellular technology, many rural communities are likely to get left behind, simply because the business logic of that expansion doesn't work - there may be no return on investment from a $100,000 cell tower in a sparsely-populated rural area. Not to mention the fact that this would lock in a costly, climate-unfriendly dependence on fossil fuels to power the networks. But mobile companies are making money with their current approach, and are comfortable with it, so how to get them to change?

The Vietnam pilot provides part of the answer by inviting the companies to "kick the tires" and see it in operation. Putting together an ecosystem of suppliers backed by a familiar corporate name - Intel, in this case, which is supporting both WiFi and next-generation WiMax [5] wireless equipment - is also part of the answer. Building demand at local levels can help too- officials of Quang Ngai Province are already getting calls from communes not part of the pilot asking when they can get "their" WiFi networks, and the provincial government has discussed building a province-wide network itself, if the telco doesn't roll it out commercially.

Marketing is key; pushing the hard business logic of lower cost and higher profits, pointing out that WiFi networks with their solar power supplies offer a chance to "green" the mobile buildout, persuading the number three company in a market that this is the way it can leapfrog over the number one company in numbers of customers. Hopefully, the timing is right. Mobile companies everywhere in the developing world are coming to grips with the fact that virtually all of their future customer growth will come from rural areas, that diesel fuel prices are not likely to drop anytime soon, and that there is significant demand for Internet services even in rural areas.

The bet is that if a few companies adopt this approach and prosper, then market forces will bring many others on board and a growing number of voice-based applications can bring new productivity to rural communities - in short, sector transformation. And if so, rural communities will finally be connected to the global economy.

Imagine what a difference it would make in the outlook and expectation of the next generation of children in rural areas if they grow up with Internet access - regardless of whether that access is by computer or by broadband-enabled phone.

In the next post, I will describe how an innovative model for health care delivery could create transformative sectoral change of an equally great magnitude.