model : Innovations, challenges and opportunities

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ConnectingAsia s s poorthroughthe the budgettelecom telecom network model : Innovations, challenges and opportunities 2011 International Conference on mobile business (ICMB) Como, 20 June 2011 Ayesha

1 ConnectingAsia s s poorthroughthe the budgettelecom telecom network model : Innovations, challenges and opportunities 2011 International Conference on mobile business (ICMB) Como, 20 June 2011 Ayesha Zainudeen Based on research conducted for Nokia, as well as research supported by funds from the International Development Research Centre, Canada and UKaid from the Department for International Development, UK, with contributions from Telenor Research and Development Centre, Sdn. Bhd.

2 Overview Mobile is dominating communication channels in developing markets, even among the poor Operators in these markets have been able to get service cost down to bl below USD5 (even lower) )to enable them to get connected; how? Innovations driven by intense competition; the evolution of y p ; the budget telecom network model

3 Bottom of the pyramid, a large, valuable, under tapped d market Lowest socio economic groups Roughly living on USD2 per day SEC D + E (LIRNEasia) Many consumers consuming little amounts Estimated 3 billion, globally Many opportunities for companies (as well as consumers) 3

4 SOME INSIGHTS FROM ASIA'S BOP 4

5 Most have used a phone in the last 3 months Use of the phone (% of BOP [outer sample]) Have used phone in last three months Have used a phone in last week 95% 96% 82% 66% 65% 86% 88% 77% 79% 77% 72% 38% Bangladesh Pakistan India Sri Lanka Philippines Thailand Among BOP

6 BOP make about 1 call per day Average number of calls per week Bangladesh Pakistan India Sri Lanka Philippines Thailand Incoming Outgoing Unspecified Diary responses

7 Non owners owners can get to a phone in ~5 minutes (walking) Time to reach the nearest phone (% of BOP non owner owner teleusers) 100% > 60 minutes 80% minutes minutes 60% minutes 40% minutes 5 10 minutes 20% 3 5 minutes 0% 2 3 minutes Bangladesh Pakistan India Sri Lanka Philippines Thailand < 2 minutes Over half have access within house (mostly via other household members mobiles) Among BOP non owner teleusers

8 Even those that don t own mobiles already use them ICT use and ownership (% of BOP) Use a mobile Own a mobile Use the Internet Own a computer Bangladesh Pakistan India Sri Lanka Philippines Thailand Many not even heard of the Internet! Among BOP

9 Many non owners planned to get connected within 1 year from survey; mostly to mobile Type of phone planning to buy (% of potential BOP owners) Mobile Fixed (wireline) Fixed (wireless) Fixed (undecided) Not decided 0% 2% 4% 2% 1% 0% 5% 1% 0% 3% 1% 5% 0% 6% 0% 33% 98% 93% 92% 6% 89% 100% 58% Bangladesh Pakistan India Sri Lanka Philippines Thailand Many would like to get mobiles with coloured screens, cameras, radios and torches Some demand for SMS and MMS capabilities, Internet and Bluetooth in PH and TH Among BOP non owner teleusers planning to get connected

10 HOW WERE OPERATORS ABLE TO SERVE THIS SEGMENT? 10

11 South Asian operators saw the opportunity and brought down total cost of ownership Monthly total cost of ownership (2007) Includes: Calls and SMS Monthly rentals 1/36 th of connection charges 1/36 th retail cost of cheapest Nokia handset Direct taxes (handset and service) Internet premium (2010 onwards) Source: Nokia, 2007; TCO for 77 emerging economies

12 ...others followed Total cost of ownership (2009) Source: Nokia, 2009; TCO for 77 emerging economies

13 MonthlyTCO compares cost ofsamebundle Basketof OECD low user calls and SMS for prepaid user Monthly rentals 1/36 th of connection charges 1/36 th retail cost of cheapest available Nokia handset Direct taxes (handset and service) Internetpremium (2010 onwards)

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

15 Operators managed to get TCOs down (and make profits) by innovation The budget telecom network model Innovation driven by intense competition In spite of poor policy/regulatory environment Key factor was removal of barriers to market entry (transparent or not) where there are enough players, with one of them at least bi being willing to engage in disruptive i competition Operators forced out of comfort zones, forced to innovate

16 Better utilizationofexistingnetwork of network Increased network utilization levels to accommodate higher traffic volumes Base station software updates to improve utilization Network capacity expanded on call attempts/second basis, rather than subscriber basis

17 Catering better to consumers with low incomes and low, irregular spending patterns Prepaid solutions better matched BOP income and spending patterns % of BOP mobile owners Bangladesh Pakistan India Sri Lanka Philippines Thailand Prepaid connection Postpaid connection Shift away from large denomination scratch cards cards toward any amount micro top ups Among BOP mobile owners

18 Owners spend little, but often; micro top ups used widely Bangladesh gades Pakistan India da Sri Lanka a Philippines Thailand aad Last top up (USD) No. of days expected to last Scratch cards vs electronic top up usage (% of BOP prepaid mobile owners) Scratch card Electronic top ups Bangladesh Pakistan India Sri Lanka Philippines Thailand Among BOP prepaid mobile owners

19 Reducing customer acquisition and retention costs Distribution costs cut by controlling level of commissions paid out to dealers who acquire customers E.g., acquisition cost of USD1 in LK; no commission paid unless subscriber stayed on network for certain period.

20 Concluding thoughts: EXTENDING THE BTNM, BEYOND ASIA? BEYOND VOICE?

21 60 BTNM spreading beyond Asia; data costs still high h in some places 50 Monthly total cost of ownership (2010) Ave with Internet premium: USD Ave: USD USD per month Bangladesh Sri Lanka China Pakistan India Uzbekistan Kenya Egypt Vietnam Sudan Iran Ethiopia Cambodia Thailand Ghana Uganda Tanzania Haiti Indonesia Algeria Philippines Tunisia Bolivia Guatemala Mozambique Nigeria Senegal AVERAGE Syria Honduras Côte d'ivoire Kazakhstan Ecuador Dominican Republic Guinea South Africa Madagascar Angola Zimbabwe Burkina Faso DRC Colombia Zambia Malawi Chile Cameroon Morocco Turkey Chad Argentina Peru Brazil Monthly TCO (USD) Internet premium (USD) Source: Nokia, 2011; TCO for 50 emerging economies

22 BOP mobile use mostly voice, SMS and missed calling; mobile Internet and applicationsyet to pick up BD PK IN LK PH TH No ot reg gula rly Re egula rly No ot reg gula rly Re egula rly No ot reg gula rly Re egula rly No ot reg gula rly Re egula rly No ot reg gula rly Re egula rly No ot reg gula rly Re egula rly Banking and financial services 1% 2% 1% 3% Payment services 3% 2% 3% 1% 4% Government services 2% 2% Health services 1% 1% 8% 1% 2% Voting, competitions, reality shows, etc 1% 1% 1% 5% 7% 1% 8% General information services 1% 1% 3% 2% 5% 11% Agricultural or fisheries information 1% Reasons for non use: Don t know how Not applicable to me Too expensive When they're available free via other modes Insufficient prepaid credit for transactions

Dinn Automobile mechanic 15 years Jae Hom, Thailand Previously subscribed to sports news on his mobile, until he felt that the service was not worth spending on, since the same information is

23 Dinn Automobile mechanic 15 years Jae Hom, Thailand Previously subscribed to sports news on his mobile, until he felt that the service was not worth spending on, since the same information is available for free on the TV and Internet. Tried using the Internet on his mobile, but he lost all his credit (THB50) in less than 5 minutes. He no longer uses it on his mobile. Instead, he goes to a cyber café and downloads ringtones, wallpapers and themes for his mobile and uploads his mobile photos to his Hi5 page. A two hour visit ii only costs him THB20.

24 Some variant of BTNM is what s likely to work wrt data connectivity Depends on, inter alia release of 3G frequencies Reduction in opex (incl. backhaul costs) service pricing relevant services device pricing

25 (search term: BOP) dataset available at /bop teleuse 3/ TCO data: Nokia Photos: CKS Consulting

Key takeaways. Beyond-voice services offer new revenue sources for operators Social influence a key factor in beyond-voice service adoption

Key takeaways. Beyond-voice services offer new revenue sources for operators Social influence a key factor in beyond-voice service adoption Mobiles beyond voice: identifying the conditions for use Ayesha Zainudeen, Senior Research Manager, LIRNEasia Dimuthu Ratnadiwakara, former Researcher, LIRNEasia CPRsouth5, Xi an, China This work was carried