Mobile phones and development Calling an end to poverty
Jul 7th 2005 >From The Economist print edition >http://www.economist.com/business/displayStory.cfm?story_id=4157618 ALL eyes are on what governments can do to end poverty, with aid, debt relief and trade top of the agenda at this week's G8 summit. But what about the role that business can playand, in particular, technology firms? It is increasingly clear that, when it comes to bridging the digital divide between rich and poor, the mobile phone, not the personal computer, has the most potential. Emerging markets will be wireless-centric, not PC-centric, says C. K. Prahalad, a management scholar and author of The Fortune at the Bottom of the Pyramid, a book that highlights the collective purchasing power of the world's 4 billion poorest people and urges firms to try to profit from it. Mobile phones have become indispensable in the rich world. But they are even more useful in the developing world, where the availability of other forms of communicationroads, postal systems or fixed-line phonesis often limited. Phones let fishermen and farmers check prices in different markets before selling produce, make it easier for people to find work, allow quick and easy transfers of funds and boost entrepreneurship. Phones can be shared by a village. Pre-paid calling plans reduce the need for a bank account or credit check. A recent study by London Business School found that, in a typical developing country, a rise of ten mobile phones per 100 people boosts GDP growth by 0.6 percentage points. Mobile phones are, in short, a classic example of technology that helps people help themselves. But despite rapid subscriber growth in much of the developing world, only a small proportion of peoplearound 5% in both India and sub-Saharan Africahave their own mobile phones. Why? The price of handsets is the biggest obstacle to broader adoption, says Alan Knott-Craig, boss of Vodacom, which runs networks in five African countries. Azmi Mikati of Investcom, which runs networks in Africa and the Middle East, estimates that the number of users would double in those markets if the cheapest handset cost $30 instead of $60. Ringing the changes Handset-makers earn most of their profits from fancy phones sold to consumers in rich countries, where on average a handset costs around $200 (before operator subsidies). But as markets have become saturated in the rich world, manufacturers have started to realise that their future growth depends on catering to the needs of developing nations. As a result, they have been working with operators to develop new extremely cheap handsets and to boost adoption in the poor world. Several operators from developing countries teamed up earlier this year under the auspices of the GSM Association, which promotes the use of GSM, the world's dominant mobile-phone standard. They invited the handset-makers to bid for a contract to supply up to 6m handsets for less than $40 each. The contract was won by Motorola. Delivery of handsets began in April. The low cost is not due to cross-subsidy from high-margin handsets or corporate social responsibility funding, insists David Taylor of Motorola. We do make a margina much smaller margin, but it is still a margin, he says. This week the procurement process began for more handsets, to be delivered from next January. As well as letting smaller operators pool their bargaining power, this scheme aims to draw manufacturers' attention to the needs of developing countries. This was the first time that emerging-market operators had come together, says Ben Soppitt of the GSMA. Each operator is small, but together they represent a big market. We believe we can increase the market by 100m-150m customers a year for five to ten years if we can get the affordability right, he predicts. That means encouraging handset-makers to design new extremely cheap phones on which they can still turn a small profit. Such a phone cannot simply be a cut-down version of an existing handset. It must be very reliable and have lots of battery capacity, as it will be used by people who do not have reliable access to electricity, says Mr Taylor. Motorola's low-cost handset has a standby time of two weeks. And the handset must conform to local languages and customs: Motorola's handset, for example, includes a football game in Africa, but a cricket game in India. Nor can the makers skimp on design. Kai Oistamo of Nokia, the world's largest handset-maker, notes that people in poor countries have to spend a far larger proportion of their income than those in the rich world to buy even the cheapest handset. So looks and brand are highly importantit is much more of a status symbol in those societies, he says. And it is wrong, points out Mr Prahalad, to assume that consumers in poor countries will not be interested in fancy features such as music-playback. Since they cannot afford multiple devicesan iPod, a PC, a PlayStationthey may want more from their mobiles. As handset-makers respond to this new market, prices will continue to fall. We will give you the volumes so that you can continue to drive down prices, promised Sunil Mittal, boss of Bharti, a big Indian operator, at a recent industry conference. On June 29th Philips, a Dutch electronics firm, announced a new range of chips designed to take handset costs below $20. Lower prices will make a second barrier ever more apparent: high taxes and duties imposed by many governments on handsets and services, often just as growth in the sector starts to take off. It does seem strange for countries to say that telephone access is a public-policy goal, and then put special or punitive taxes on telecoms operators and users, says Charles Kenny, an economist at the World Bank. It's a case of sin taxes on a blessed product. In Turkey, new subscribers must pay a special tax of 20 new liras ($15) for a connection. A sales tax of 18%, plus a special communications tax of 25%, is added to all mobile bills. Uganda has just imposed a 10% tax on mobile phones. In Afghanistan, telecoms taxes account for 14% of government revenue, says Mr Kenny. In Bangladesh, the government has just imposed a tax of 900 taka ($14) on all new connections, in addition to an import duty of 300 taka levied on all imported handsets. In big markets, such as Brazil, handset-makers have set up local factories to avoid import duties. That will not pay in smaller, poorer places. To avoid taxes and duties, many mobile operators in sub-Saharan Africa do not supply handsets, but rely on customers to get them on the black market, says Mark Burk of Informa, a research firm. Yet there is anecdotal evidence that reducing taxes on handsets can boost government revenues. People would rather pay a small tax on a legal handset than no tax on a smuggled one that cannot be returned if it goes wrong. There are some hopeful signs: India cut its import duty on handsets to 5% last year and plans to scrap it altogether. Mauritius recently cut its taxes on handsets to boost adoption. The GSMA is now making a 50-country study that will, it hopes, provide conclusive proof of the benefits of cutting taxes on mobile phones. The aim, says Mr Soppitt, is to show that a win-win-win scenario is possible, in which customers get cheaper access, manufacturers and operators sell more handsets and airtime and governments raise their tax revenues. (Oh, and the digital divide vanishes, too.) With its new focus on low-cost handsets, the industry is doing its part to extend access to communications technology. Now governments must do their part, too. --------------------------------- Yahoo! Mail Stay connected, organized, and protected. Take the tour [Non-text portions of this message have been removed] *************************************************************************** Berdikusi dg Santun & Elegan, dg Semangat Persahabatan. Menuju Indonesia yg Lebih Baik, in Commonality & Shared Destiny. http://www.ppi-india.org *************************************************************************** __________________________________________________________________________ Mohon Perhatian: 1. 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