Mobile services for growth and development in emerging markets Vodafone Group Public Policy Emerging Markets Team

2 Key distinctions between emerging and developed markets 1/Infrastructure environment Developed market – model #1: - the US 2 extensive fixed networks3 – 5 extensive mobile networks Developed market – model #2: - (most) of the EU 1 extensive fixed network3 – 5 extensive mobile networks Emerging market – model #1 1 fixed network with limited geographical reach 2 – 7 expanding mobile networks Emerging market – model #2 No fixed network2 – 7 expanding mobile networks 2/State resources Developed marketMany demands on state resources High GDP/capita Taxation of sector at national average Emerging marketMany demands on state resources Low GDP/capita Taxation of sector higher than national average

3 Implications for policy makers 1/Infrastructure Emerging market model #1 1 fixed network with limited geographical reach 2 – 7 expanding mobile networks Emerging market model #2 No fixed network2 – 7 expanding mobile networks Both evolve intoFixed network remains limited. Fibre investment arises in urban, business dense areas. 3 – 5 mature mobile networks 2/Investment Developed marketResources for development may arise external to the sector Emerging marketResources for development must arise within the sector and are constrained by taxation

4 Expectations for communications provision 1/While developed markets will move to wide geographic availability of fibre- based access, emerging markets (generally) won’t. And use of copper won’t expand either. 2/Expect developments in competitive fixed supply to focus on city centres, business parks and other urban-business dense areas – in support of / facilitating activities such as bulk outsourcing. 3/For SME and consumers, including Base of Pyramid consumers, mobile – or at least – radio delivery will dominate service provision in emerging markets. 4/Relative gap for SMEs and consumers between developed and emerging markets will grow over next period. Which is bad, but probably not as bad as it sounds. Much bandwidth investment for consumers (at least) in developed markets won’t lead to a difference in services actually available or consumed. Growth of data service penetration rates matter much more than crude pipe speed.

5 Implications for services available 1/Two services are already widespread: voice and SMS. The services which have driven demand to date. These services which will continue to dominate communications demand. Vodafone research in India shows that economic benefit is subject to significant “network effects” which kick in at 25% penetration. 2/Next service to emerge will be data allowing efficient interaction to support personal internet transactions: web-browsing etc. For SMEs expect demand for higher speeds to allow for bulk file transfer etc.. 3/Audio streaming is the next meaningful threshold 4/Video streaming is longer term objective – and key service threshold. Expect an expanding geographic “frontier” of network capabilities as mobile networks roll out from urban to less urban areas. And widening social adoption as new device costs fall and these can be sold profitably to progressively less wealthy segments - plus effect multiplier as older devices are re-sold / re-used in informal market. Both these rates of geographic development / social adoption are within the ability of policy makers to influence.

6 SMS “bundling” Why is SMS so successful? Regulatory discussion of universal service rarely mention SMS. But SMS is an amazing universal service success story. It is used by more customers in the world than voice. Total cost of ownership is low. SMS has included a previously almost wholly excluded group: profoundly deaf users. What dynamics drive this success? –High value to customers –SMS terminal capability bundled with voice –Terminals re-used / re-sold multiple times –Coverage follows that of voice –But usage characteristics different to voice –Low incremental cost to expand network supply as demand grows A new way of communicating supported by mainstream mobile business model. What to expect with new services? SMS approach can be duplicated in emerging markets Network capabilities become available to serve high-value segments, but once available can be used by all, and will progressively expand as demand grows. Handset capabilities enter high-value segments of the market (and may be subsidized) and percolate down to lower- value segments – which is what poverty- related inclusion is… Expect this to mean personal transactions on the internet – web browsing, etc. will become available to poorer customers – as SMS. Not universal fibre access at XMbit/s but is a pragmatic way of providing mass household and personal connectivity in emerging markets.

7 So what does this mean for new application delivery? It is common to want to look beyond voice but this may not be the most helpful way of thinking about new applications for emerging markets. Voice and SMS will remain what most customers are familiar with and use And in developed markets consumers use a multiple communications services to provide access to applications. For example, in banking: - phone access to arrange payment; - SMS delivery of balances / payments made; - web-based statements, payments; and - paper-based statements. Successful innovative service delivery in emerging markets will offer a range of options for customers (exploiting a range of access modes) to allow for customer choice and to maximize total reach. Expect successful applications to continue to use voice and SMS interaction even as progressively higher data speeds are offered. This could both reflect different relative costs of labour and capital and lower levels of literacy in emerging markets.

8 Implications for regulators To support geographic development:/ service penetration policymakers should creation of the right ecosystem which encourages competitive delivery: –increase spectrum availability and flexibility (re-farming); –encourage commercial network sharing and deploy US funds to increase rural reach; –ensure a stable policy environment which will repeat SMS “bundling” dynamics for new services – key to rollout of mobile internet access. Voice –Ensure range of business models / price points in market to allow for different service environments. –Investigate and promote voice based applications SMS –Common short code system across all networks. Effective premium rate service regulation, including restrictions on outpayments, to prevent abuse. –Investigate and promote SMS based applications

9 And finally… We see a wide range of applications for mobile services delivery: M-Payment, M-Heath, M-Government, M-Education, etc While availability of mobile communications and the communications environment is (obviously) key Getting support from policy makers in the applications area is just as important. Unless they are as committed to inclusion through the development of new applications and new models then success will be difficult.