 | Issue: | Global-ICT 2005 |
| Article no.: | 18 | |
| Topic: | New business models to reach the rural poor | |
| Author: | Bert Nordberg | |
| Title: | Executive Vice President, Group Function Sales and Marketing | |
| Organisation: | Ericsson | |
| PDF size: | 220KB |
About author
Bert Nordberg is the Executive Vice President, Group Function Sales and Marketing of Telefonaktiebolaget LM Ericsson. Mr Nordberg’s previous positions at Ericsson include Senior Vice President, Group Function Sales and Marketing, Head of Business Unit Systems, Head of the Global Services Business Unit, Executive Vice President Division Global Services and Executive Vice President of Ericsson Services. He joined Ericsson in 1996, as Head of Enterprise Services, which provides services for all enterprise segments within Ericsson. Before joining Ericsson, he served in various positions with Data General Corporation and Digital Equipment Corporation in Sweden. Bert Nordberg graduated with a Bachelor degree in Electronic Engineering and as an Engineer in the Marines, from Berga. He studied International Management, Marketing and Finance at Insead University, France.
Article abstract
Mobile voice communication for the rural poor requires no new technology or economic studies. Its value is incontestable. Wireless networks cost less to build and operate, and can be deployed more rapidly than traditional networks. Given the low per user revenues expected in remote areas, a new business model that spreads the operator’s risk and adheres to market realities will allay fears and stimulate investment in these services. Mobile communications facilitate social and economic development and foster individual creativity.
Full Article
‘The ultimate business opportunity: ‘Plenty of evidence suggests that the mobile phone is the technology with the greatest impact on development. . . (The) impact is twice as big in developing nations as in developed ones… (An) extra ten phones per 100 people in a typical developing country increases GDP growth by 0.6 percentage points.’ The Economist, 10th March, 2005 ‘Nearly two-thirds of the planet’s people are poor. Most companies are serving at best one-third of the world population and are fiercely competing over saturated markets. Yet many corporate managers now realize that stepping up their company’s presence in developing countries will be crucial to their long-term competitiveness and success.’ World Resources Institute Regardless of the outcome of discussions over the proper level of development assistance funding from the world’s wealthier nations to the poorest, achieving the UN Millennium Development Goals will remain an unrealisable dream without the creation of sustainable economic opportunities for underprivileged people in rural areas. Two-thirds of the world’s population lacks access to any form of voice or data communication. Most of these people live in rural areas with limited access to infrastructure such as roads, electricity and banking. Many studies lead to the same conclusion: the vital applications for the rural poor are mobile voice telephony and proven SMS-based consumer applications that can run on mobile networks. Reliable, affordable, access to telephony is a requirement for virtually any realistic development scenario that aims to help people improve their lives by building local businesses. However, the business models applied by mobile network operators in developed markets to build their subscriber bases and revenues are, with few exceptions, not achieving the economies addressed by the Millennium Goals. Attempting to build mobile networks in rural areas using existing business models would result in parallel infrastructures and operations, which would negatively affect both environmental and commercial sustainability. Technology is not the issue, because all the technologies that might be needed already exist. The real issue is business modelling. The rural business model A new Rural Business Model, based not on subsidies or monopolies, but on sound business principles, shared networks and shared financial risk, is needed. In Tanzania, we are working together with government and regulators, incumbent network operators, commercial banks and development assistance agencies to construct such a network. If successful, this project will serve as a template for use in other areas. Under the Rural Business Model, neutral, locally operated Special Purpose Companies (SPCs) will construct and operate wireless networks, selling capacity on an as-needed basis to a variety of operators. This approach will generate new revenue for incumbent operators and start-ups alike, with dramatically lowered initial capital expenditures. Establishing a separate business entity to build and operate the network creates a level playing field for operators to develop and test business models with minimal investment. Several stakeholders, including financial institutions and local investors, will be joint owners of the SPC. This company will sell capacity on strictly commercial terms, and will not compete for direct relationships with consumers. By separating network operation from sales, marketing and customer care, the Rural Business Model breaks the high entry barriers faced by traditional telecommunications companies in the rural regions of underdeveloped economies. One of the greatest challenges identified by operators in their business planning for these regions is the low average revenue per user (ARPU) that can be expected there. Even earning healthy revenues in densely populated areas, these companies see too much risk in trying to balance capital and operational expenses given the low rural ARPUs they expect. The Rural Business Model enables the various stakeholders to manage risk while concentrating on their core expertise since: – The credit risk is spread among several stakeholders and financial institutions; – Operational risks are assumed by the equipment and services vendors who build and run the networks; – With a pay-as-you grow model, local entrepreneurs only assume risks in specific market segments, not for the overall viability of an entire network. Voice communication for economic growth The value of voice telephony for the rural poor is well known and undisputed. Boaz Fletcher, General Manager of Equatel, in an article from Connect-World Africa & Middle East 2005, eloquently presents the case of Jonathan Mbenge. Mbenge, a Congolese, makes skin drums of such quality that they would win world renown among musicians if only the world knew of his exquisite instruments, but Mbenge lives a full day’s walk from the nearest town. ‘If (he) could just make a phone call, he could save himself two days’ journey to reach potential buyers’, Fletcher writes. Other examples abound: farmers and fishermen who need phones to call markets and get the best prices for produce, small businesses phoning for essential supplies, cashless transactions over mobiles that cut the risk of sellers being robbed during the trip home. Priority services In addition to business-to-business trading, other priority areas for the Rural Business Model include mobile banking, health care and education. When mobile network capacity becomes available, entrepreneurs will inevitably step in to create a wide range of consumer applications for specific local needs. There are several key conditions for this concept to succeed: – The Rural Business Model must follow sound commercial principles; – The model must allow the rural poor to create economic value and contribute to economic growth; – The mobile phone should be brought to the people, rather than bringing the people to the phone, as is the case with telecentres and kiosks; – Multilevel support and cooperation is required from several organisations, governmental agencies and private companies to spread risk and overcome local obstacles; – Political will must be shown by governments and regulators to overcome barriers. There is no need for further study of the economic value of mobile voice communication for the rural poor and there is no need for development of new technology for the rural areas. Because wireless networks are far less expensive to build and operate than fixed-line services, developing regions considered, in the past, too remote for traditional phone service are now ready to leapfrog into widespread mobile communication. Achievement of the UN Millennium Development Goals will require new business models that adhere to market realities while striving to empower individual creativity. Mobile communication is clearly an essential contributor to social and economic development. Telecommunications technology and services suppliers have to work with governments, development assistance agencies and private companies of all sizes to make this vision of widespread voice communication a reality.
