Home Africa and the Middle EastAfrica and the Middle East 2005 Working together toward the next billion users

Working together toward the next billion users

by david.nunes
Juha PinomaaIssue:Africa and the Middle East 2005
Article no.:10
Topic:Working together toward the next billion users
Author:Juha Pinomaa
Title:Vice President, Mobile Entry Business Line
PDF size:88KB

About author

Juha Pinomaa is the Vice President of Nokia’s Mobile Phone Entry Business Line. Mr Pinomaa was Director of Product Marketing and Business Development for Nokia’s Mobile Entry Business Unit, having served earlier as Vice President of Product Marketing of the CMT Business Unit. Before that, he served over three years in Irving, Texas, as Vice President of Product Marketing for the Americas and as Vice President of the AMPS Product Line. Prior to this, Mr Pinomaa was Managing Director of Nokia Mobile Phones Pte Ltd in South East Asia and worked in Australia as Product Manager. He began his career with Nokia in as a Management Trainee in Salo, Finland, and then served as Product Manager for Global Product Marketing. Since 2000, Mr Pinomaa has been a member of the board of the Nokia Brand Forum. He has also served on the board of the Nokia Environmental Steering Group since 2001. Mr Pinomaa holds a Master of Business Administration from the University of Pennsylvania and a Master of Science in Industrial Management from Helsinki University of Technology. He speaks Finnish, English, Swedish and German.

Article abstract

The ranks of mobile subscribers should reach the 2 billion mark this year – well ahead of forecast. Africa has one of the fastest mobile growth-rates in the world. Wherever mobility is available and affordable, it quickly becomes part of the social fabric, stimulates economies and provides new channels of communication for social services. To stimulate the growth of mobile in Africa and to facilitate the economic and social gains, government and industry must work together to make mobile affordable for all.

Full Article

All across the world, people are using mobile technology to connect to other people, information and services. The sheer number of mobile users is amazing, with hundreds of thousands of people making their first mobile calls every week. Growth has been so fast over the past two years that now experts agree that the 2 billion mobile subscriber landmark will be reached this year – well ahead of forecast. Nowhere is the rate of growth faster than in Africa. Africa’s 800 million people inhabit 54 countries spread across 30 million km2. They are proving once again that wherever mobility is introduced, and made affordable, it quickly becomes a part of the social fabric. The presence of mobility not only enables and simplifies connections between people; it also brings significant socio-economic benefits to individuals, communities and nations. It creates new forms of employment, changes the flow of information, stimulates economies and provides new channels of communication for social services. We’ve seen examples of these benefits in Africa. For example, female entrepreneurs in Kenya run mobile public phone services for villages and use the proceeds to fund social services. In Nigeria, farmers and fisherman are using affordable SMS services to get real-time information on market prices, enabling them to find the best price for their efforts. Mobiles in community buses and taxis deliver affordable mobile services to distant communities, and they have given drivers an extra source of income. These extended benefits of mobility cannot be underestimated; they have driven the continued growth of mobile subscriptions. The question is how to bring the benefits of mobility to the next billion subscribers. Eighty per cent of mobile growth in the coming years is expected to come from previously untapped markets and untapped end-user segments. The key will be understanding what makes the next billion mobile subscribers different from the first billion. Growth through affordability Imagine a pyramid. At the top we find the world’s current mobile users. For the most part, these are relatively affluent people who live in urban areas. Their incomes, and the established network infrastructure, enable them to afford mobility comfortably. As we go down the pyramid, we reach a point known as the “affordability line”, below which we find lower-income people who cannot afford mobility as it is now offered. Growth will come from lowering the affordability line by reducing the total cost of ownership of mobility. And, as the shape of they, pyramid illustrates, the lower the line goes the broader the potential audience becomes. So, from a business point of view, worries about lower Average Revenue Per User (ARPU) – which in new growth markets can be as low as five per subscriber per month – are quickly overcome by the potential for huge volumes with respectable margins. Indeed, a low ARPU operator, managing a lean business system, can be very profitable. Take the case of the Philippines, one of the world’s most successful new growth markets. Even though the average income is low – 969 USD GDP/Capita, mobile subscription penetration there is nearly 33 per cent. The relative success of the Philippines is based upon affordable terminals, cost-effective operator business models, and a favorable regulatory environment. Given this environment, Smart is running a very profitable business in the Philippines with a healthy EBIDTA at an ARPU of below eight USD. Other success cases can be found in Russia and Thailand. Lowering the affordability line Lowering the affordability line by reducing total cost of ownership requires several interdependent actions: 1. The out-of-pocket cost of a new user’s handset has to be lower. This means manufactures must find ways to produce more affordable devices. Despite the lower cost, these handsets must be highly reliable, high-quality, devices since the new users are spending large percentages of their incomes to buy them and cannot afford to replace their handsets frequently; 2. The “running costs” have to be lower. Vendors have to find ways to provide basic quality service at minimal cost and operators must develop and provide affordable service packages that are geared to the cash flow and budgets of lower-income people; 3. There needs to an “enabling environment”. Policy maker and regulators should actively clear the way for a competitive marketplace that will naturally keep prices low and implement a tax and duty policy that stimulates the economy by promoting widespread mobility. By working together, industry and government can extend the socio-economic benefits of mobility to more people. The mobile industry is making great strides in accommodating the needs of an increasingly wider range of users by focussing upon certain key issues:  Affordable and attractive handsets Low-income consumers look for the same characteristics as high-income segments. They have similar aspirations, ways of living and requirements for consumer products as do other segments. Known brands prove popular. Good usability and high quality minimize customer care costs. Low device failures result in less revenue loss and fewer enquiries to call centers.  Mobile infrastructure From a mobile network operator’s perspective, it is possible today to successfully target areas with approx five EUR ARPU. In addition to looking for CAPEX (capital expenditure) savings, operators can favor solutions ensuring lower network running costs (OPEX) and lower service OPEX – for example, in prepaid processing. New technology is available that, once deployed, dramatically increases the efficiency of networks and lowers the cost of subscriber maintenance. For example, new, more efficient, ways of transmitting voice communications enable operators to derive more capacity from the same infrastructure. Entry-level handsets can be equipped with network efficiency features like Adaptive Multirate (AMR) and Single Antenna Interference Cancellation (SAIC).  Service enablers Micro-pre-paid makes it cost-effective for operators to gear their pre-paid offerings to people with very slow, very low, cash flows. These users need to pay in very small increments, but this is not practical using traditional pre-paid scratch card methods. Enabling technology now gives operators a cost-effective way to service these low value transactions electronically. Users go to a local shop and buy low-denomination account top-ups, the vendor uses a mobile device to authorise the purchase, and the user receives his top-up automatically. The results: minimal cost to the operator and for the subscriber a viable and regular access to mobile services.  Removing the growth inhibitors In many markets growth inhibitors like high customs duties, handset sales taxation, service taxation and inefficiencies in service tariffs prevent growth by adding costs for the end-user. These growth inhibitors stand in the way of the favorable evolution of these markets. Cooperation among stakeholders, a common front, is essential to convince the local authorities to adopt measures which place fewer restrictions upon market growth. Governments need to rethink the alternatives they have for generating revenues from customs duties, from the taxation of devices and of mobile services. Regulators can make great advances by opening up markets and encouraging healthy and fair competition. Together, throughout the world, measures such as these have driven the reduction of both the costs of acquisition and the costs of services. A recent study, in 37 middle- and lower-income nations, in Latin America, Africa, the Middle East, North Africa, Asia and Europe investigated the factors affecting mobile penetration rates in new-growth markets. Possible barriers looked at that might affect mobile penetration rates included income levels, the availability of credit, call and SMS tariff rates, pre-paid refill affordability and ease of access, interconnection costs, the availability of calling party pay schemes, population coverage, regulations, tax and duty levels, and the state of market liberalisation. The study looked at common factors that might link the success of the nations showing the highest penetration rates relative to private consumption per head in each of the regions. The study found that the star performers consistently had lower-than-average call tariff rates than their region. Also, they all showed lower-than-average minimum prepaid refill levels and a higher availability of e-refills than was normal for their region. Star performer groups all comprise an average, or greater than average, number of network operators. The countries or states they operated in generally had lower levels of customs duties, lower absolute service tax levels and higher population coverage levels than the regional average. The levels of personal income and overall economic development are the crucial driver for mobile penetration; however, individual governments can initiate policy changes that allow mobile telecommunications to thrive within the limits of the nation’s existing economic situation. In many markets, growth inhibitors like high custom duties, handset sales taxation, service taxation and inefficiencies in service tariffs prevent the growth by increasing the consumer’s total cost of ownership (TCO). These growth inhibitors need to be removed in order to secure favorable conditions for growth in these markets. Working together to spread mobility’s benefits Stakeholder cooperation is essential to build a base for substantial future growth in mobility. Only by working together will industry and governments find the way ahead. An enabling environment will inspire investment. A competitive marketplace will encourage competition, ensure quality and drive penetration. All this will build the mobile market, enabling industry to further reduce costs and to innovate. The result benefits all. Users connect to loved ones, wherever they are. They connect to work. They connect to social services. They create new enterprises. The mobile industry grows. Governments enjoy stronger economies, provide better services and generate more tax revenue.

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