The path to the information society: Does it lie through the mobile? Evidence from Asia and thoughts for Africa Rohan Samarajiva SA Connect Public Seminar, Cape Town 14 April 2009

The challenge... Solve the hardest problem: getting the poorest millions connected to the Information Society –This will potentially unlock many markets and drive the world economy to a new level Innovation at multiple levels needed –Business models to connect large numbers of poor people to electronic networks; extend from mobile to broadband –Technical solutions to make it possible for them to do more-than- voice, once connected –More-than-telecom solutions to problem of putting money in people’s pockets through telecom, rather than taking money out

Connecting the millions at the bottom of the pyramid…

WSIS definition of Information Society “a people centered, inclusive, and development- oriented information society where everyone can create, access, utilize and share information and knowledge enabling individuals and communities to achieve their full potential in promoting their sustainable development and improving their quality of life.”

In other words... Everyone should be able to do some of what we do routinely using the metamedium known as the Internet –Communicate in multiple forms synchronous/asynchronous One-to-one/one-to-many/many-to-many Push/pull... –Retrieve information from multitude of sources –Publish –Transact –Remotely compute...

Answers from LIRNEasia’s Bottom of the Pyramid research (2008) Six countries –Bangladesh –Pakistan –India –Sri Lanka –Philippines –Thailand 9,950 sample, representing >500m Bottom of the Pyramid, age Design and analysis by LIRNEasia; fieldwork by Nielsen affiliates

Bottom of the Pyramid (BOP) = SEC D & E BOP defined as SEC D and E; b etween ages – SEC determined by education and occupation of CWE; closely related to income levels BOP sample is representative of the BOP population – Diary respondents also representative of BOP Only in Philippines, sample entirely SEC E, which gives a better match with the below USD 2/day classification SEC D & E SEC A, B & C

The hardest problem: Internet use and awareness in 2008 BangladeshPakistanIndiaSri LankaPhilippinesThailand Use the Internet 0.6%2.2%0.8%3.2%20.7%23.0% Among BOP teleusers

Little growth in South Asian Internet use since 2006 Among BOP teleusers

Will we ever get there?... But there is an alternative path... Access = mobile?

What are the prerequisites for ‘more-than-voice’ mobile? Familiarity with the technology –Access and use Easy access via mobiles or CDMA ‘fixed’ phones is most appropriate Ownership –Only 40+% in the Indo-Gangetic Plain (world’s largest concentration of poor people) own a phone –Sophisticated handsets can aid uptake Potential for use of “more-than-voice” –SMS is the most popular more-than-voice application –Payment systems in place: e-reloads as “gateway” to advanced applications

Recent use of the phone to make/receive calls BangladeshPakistanIndiaSri LankaPhilippinesThailand % of BOP (outer sample) 95%96%86%88%79%77 % 13 BangladeshPakistanIndiaSri LankaPhilippinesThailand % of BOP (outer sample) 82%66%65%77%38%72% Used a phone in the last 3 months Used a phone in the last week Among BOP (OUTER SAMPLE)

Mobiles are used most as the primary phone; public phones in second place 14 Access within the household Among BOP teleusers Also note that 20% in BD, 32% in PK, 13% in IN &10% in LK use the mobile of another household member “Fixed” phones at S Asia BOP are mostly CDMA; Mimic GSM features.

Easy access needed for more-than-voice with mobile… Easy access provided by ownership is important –Unlikely that public/shared phones will be used for anything other than basic voice Access for more-than-voice, in order of importance – Own mobile – Other household member’s mobile – CDMA ‘fixed’ phone

Total BOP phone ownership (mobile + fixed) at household level 16 Among BOP teleusers Mean price paid by BOP for: Brand new handset: USD 63 Secondhand handset: USD 32

Mostly calls, SMS, missed calls, balance checking, but some download/upload, mostly entertainment-related 18 Among BOP mobile owners

SMS more popular among those below 35 yrs 19 Below 35 years Among BOP mobile owners Sri Lanka Among BOP fixed phone owners

E-reloading most popular in Bangladesh, Pakistan, Philippines BOP Qualitative research is showing interesting hybrid strategies, where, e.g., Indian users will use a scratch card for monthly/weekly use and then top-up with small e-reloads 20 Among BOP prepaid mobile owners

Trust is key to payments over the mobile 71% of Thai top-up card users “completely trust” their method; highest level of distrust in Sri Lanka 77% of Bangladeshi electronic reload users “completely trust” their method; again, Sri Lankans most distrustful 21 Among BOP prepaid mobile owners who use each respective method

Top-ups are closer in urban areas 22 Among BOP prepaid mobile owners

Awareness  trial  use Does the BOP know about more-than-voice services? What experience do they have with these services? Do they use them?

Poor awareness in the Indo-Gangetic Plain; better in LK and Southeast Asia 24 (n=56) Among BOP teleusers

Trial and use are even poorer Thai and Sri Lankan BOP a little more advanced than other countries 25 BDPAKINDSLPHILTHAI Regularly Notregularly Regularly Notregularly Regularly Notregularly Regularly Notregularly Regularly Notregularly Regularly Notregularly Banking and financial services 1%2%1%3% Payment services 3%2%3%1%4% Government services 2% Health services 1% 8%1%2% Voting, competitions, reality shows, etc 1% 5%7%1%8% General information services 1% 3%2%5%11% Agricultural or fisheries information 1% Among BOP teleusers who are aware of services

Payments: Most who are aware don't know how or don't feel the need to use it 26 Among BOP teleusers who are aware of services but don’t use them

1/3 rd + of the unaware in Bangladesh, Sri Lanka and Philippines willing to use money transfer services & govt services via mobile 27 Among BOP teleusers who are not aware

Innovations to get from here to there “Less for less” (budget-telecom-network) business model to be successfully extended from mobile voice to mobile broadband –Special attention to quality of service experience Technical innovations

An incredible innovation that has already been made in South Asia and is now spreading Average for 77 emerging economies was USD 13.15; four South Asian countries were below USD 5 TCO in 2007, now joined by 12 others (Guinea and Madagascar in Africa) Total cost of ownership < USD 5: BD, IN, PK, LK

High EBITDA margins, suggesting... Weighted EBIDTA margin (%), 2007 Notes Bangladesh 31% Excl. Warid & Teletalk; Banglalink negative India 37% Industry; not mobile only Sri Lanka 45% Excl. Tigo

A new business model Driven by hostile external conditions, low purchasing power and pressure from disruptive innovation, South Asian operators are –Executing a new “budget-telecom-network” business model Service-process innovations that enable exploitation of long-tail markets Revenue-yielding minutes not ARPUs  high minutes of use and high EBITDA margins Because of high loading of networks quality of service is likely to be spotty –However, this being a necessary feature of the model, excessive quality regulation could have prevented/delayed its discovery/ implementation

An inapplicable definition … “Disruptive competition may be defined as existing when competitors to the incumbent have been so aggressive with their pricing that they do not cover their costs and end up making short-term losses. Their hope is in this way to gain market share and possibly force the exit of some of their competitors. In the longer term they hope they will be able to price more profitably.” Fransman, Global broadband battles (2008) Fransman does not explain why operators would engage in this kind of behavior. We know it makes sense for multi-product firms with one line of business that is under regulation or where it enjoys monopoly power; this would most likely be the Incumbent/dominant operator. But his claim here is about challengers. On the face, it does not make sense.

What we do use and what makes sense: Disruptive innovation (“less for less”) - Christensen & Raynor Potential customers want a service, but because they lack money or skill, a simple, inexpensive solution has been beyond reach They will compare the disruptive product to having nothing at all. They are happy to buy it, even though it may not be as good as other products available at high prices to current users The enabling technology can be quite sophisticated, but disruptors deploy it to make purchase and use of the product simple and convenient (enabling people with less money and training to begin consuming) The disruptive innovation creates an entirely new value network. The new consumers typically purchase the product through new channels and use the product in new venues

Postpaid vs. prepaid Think of postpaid as the conventional mode of supply Prepaid was a different service delivered through different channels to customers who could not have taken postpaid –It required more sophisticated technology than postpaid Minutes increased with low ARPUs  prices declined  service-process innovations & exploitation of economies of scale and purchasing  lower costs per minute  prepaid & postpaid prices also declined 98% of BOP mobiles are prepaid 54% of “fixed” phones at BOP in LK are prepaid BangladeshPakistanIndiaSri LankaPhilippinesThailand Prepaid (% of BOP mobile owners)

Extension to (mobile) broadband...

Recognize that not everyone has regular income Budget-telecom-network model for voice recognizes that income is irregular at the BOP and comes in small increments: e reloads –  Broadband pricing should follow; all-you-can-eat, flat-rate pricing models will not work at BOP –Should it be based on time (easier to understand) or on volume of data?

How much and for how long? 37 Among BOP prepaid owners (mobile or “fixed”) BangladeshPakistanIndiaSri LankaPhilippinesThailand USD* Local currency* BDT 20PKR 50INR 50LKR 100PHP 30THB 50 *Mode values BangladeshPakistanIndiaSri LankaPhilippinesThailand Days* Is expected to last… Value of last prepaid top-up…

Unbundle the mobile Internet The Internet is a metamedium, which includes multiple functionalities –  those who are starting may not require all the functionalities and may not be able to pay for all at first –What does “less for less” mean in broadband?

Some broadband services and significance of quality +++ highly relevant, ++ very relevant, + relevant, - not relevant ThroughputDelay ServiceDownUpRTTJitterLoss Browse (text) Browse (media) Download file Transactions Streaming media+-+++ VOIP+++++ Games

Keep costs (and prices) down Low prices are key, but cannot be sustained unless costs are also lowered This would, most likely, require economizing on links to the Internet cloud –Domestic access network is not the main problem now

2 Mbps February 2009 ADSL/WiMax Colombo: Download speeds within ISP domain…

ADSL/WiMax Colombo: Download speeds accessing international server… February %

Where is the bottleneck (Colombo)? NB: Upto 5 th hop IP addresses are within SL ( 65 ms 25 ms 170 ms 10 ms

RTT from Dhaka- Submarine Cable vs Satellite (international sites) October 2008

Colombo: International bandwidth a problem in 2009, but less than in % February 2009February 2008 February 2008 & 2009

Colombo: HSPA better than ADSL/WiMax 100% February 2009

Latency; some operators, but not all, meet IDA (Singapore) standard IDA standard 300 (ms) February 2009

Actions Buy more international capacity, and/or Do a lot of mirroring –Can this be done within the region? And, encourage locally hosted content –Given nature of mobile broadband (possibly more P2P content), this may be a significant factor

Regional mirroring? The route to (hosted in USA) from Colombo takes roughly milliseconds with 11 hops To next-door India (ww.yahoo.co.in), takes roughly the same time and 17 hops to Mumbai via Singapore and Chennai Unless these links are improved, not much benefit from regional mirroring

Quality adequate to purpose at affordable prices If voice quality is atrocious and price is high, will people buy voice services? But when service was offered at quality adequate for purpose and at low prices, the market flourished and enabled needed investment This is the key to broadband success, though the quality problem is more complex than was with voice

Technical solutions that need to be made for mobile more-than-voice…

Handsets Lower costs Higher functionalities Voice interfaces Trust-building features

Network equipment Design of 3G networks to give decent QOS with high load factors

Web interfaces Optimized for mobile not conventional Internet access

Social science has a major role to play Everyone wants to understand the end user –Handset designers –Network designers –Service designers Who will tell them? –LIRNEasia quantitative research –Nokia, Telenor qualitative research –Where are the universities U of Salzburg, usability labs ???

Putting money in user’s pockets, not taking from…

Need innovations in making/saving money from ICTs Agricultural information –Our research shows the key interventions should be at Selling stage (market information in real time) Decision stage (ability to tell what the prices will be at harvest time) M-payments –Reduce transaction costs for migrant workers –Reduce expensive cash use Transportation –Help in cutting travel time and costs More... ?

Survey asked about perceived benefits of telecom access: how has telecom access improved … Your ability to: – make more money (generally, and via sale of talk time) –find out about employment/work opportunities –access price or market information –save money –save on travel cost –act in an emergency –contact others in an emergency The efficiency of your day to day work Your relationships with family and friends Your social status/ recognition in the community 59 Five-point scale: 1=worsened  5=improved Economic benefits Emergency communication Emotional / soft benefits Efficiency

Largest benefits perceived in emergency communication and relationship maintenance Smallest benefit on economic factors 60 1=worsened 2 = slightly worsened 3=no change 4=slightly improved 5=improved Among BOP teleusers with personal incomes > 0

Teleusers less certain when it comes to financial benefits 61 Among BOP teleusers with personal incomes > 0 1=worsened 2 = slightly worsened 3=no change 4=slightly improved 5=improved

Zooming in on the Indian BOP Indians who use the phone for business activities see more benefits in terms of: making more money (also via sale of calls), ability to find out about employment, save money, improve efficiency of daily work –77% of Indian teleusers at BOP use their mobile for business, financial or work-related purposes More than half of these do so on a daily basis

77% of Indian teleusers at BOP use their mobile for business, financial or work-related purposes; more in BD and PH 63 Daily use Among BOP mobile owners

Most pronounced differences between BOPs in urban and rural Thailand Among BOP mobile owners

Who is the most entrepreneurial of them all? 65 Among BOP mobile owners