Positive Examples

While not common, there are some positive examples of profitable business ventures that provide beneficial products and services to the poor. Two good examples are mobile phones and Nirma (an Indian producer of detergents).

Mobile Phones

Mobile telecommunications is probably one of the best, and well- publicized, examples of successful BOP ventures. In 1995, there were more phone lines in Manhattan than in all of sub-Saharan Africa. Today, the penetration of mobile phones in Africa is 28 percent. More people in China and India own mobile phones than in North America and Europe combined.23 In India, about 45 percent of poor households own a mobile phone, a penetration rate greater than that for radios, and second only to televisions.24

The main perceived benefit of mobile phone usage among the poor is improved communication with family and friends. In addition, several studies have focused on the positive impact of mobile phones on the livelihoods of farmers, fishermen, and small entrepreneurs. There is also much enthusiasm about the potential for mobile phones to deliver other services to the poor, such as public health, financial services, education, government services, and disaster warnings.25

It is easy to argue that the poor need mobile phones. The industry has successfully avoided both the unmet needs trap as well as the affordability trap by reducing the total cost of ownership (TCO). According to Nokia research, the TCO across 77 developing countries was $10.88 per month in 2008, down by 20 percent from 20 05.26 Nokia believed that a TCO of $5 or less per month would enable the poor to purchase a mobile phone. In 2008, 12 countries had achieved this $5 target, including in addition to India and China, Pakistan, Bangladesh, and Indonesia.

The TCO comprises three elements: handset (7 percent), service (79 percent), and taxes (14 percent). Technological advances, the learning curve, and economies of scale are largely responsible for the tremendous decrease in the cost of the handsets and mobile services over the last few decades. The worldwide mobile communications industry association’s Emerging Market Handset program achieved its goal of reducing the price of entry-level handsets to less than $30 in 2006.27 The cost structure of mobile phone service has two important characteristics: (1) high fixed costs and low marginal costs, and (2) services sold to affluent people and to poor people use the same capital-intensive infrastructure. This implies that it is economically profitable to cross-subsidize and sell services to the poor even at very low prices, so long as the price is above marginal cost. According to a study conducted by the consulting firm BDA with chamber of commerce Ficci in India, the top 9 percent of mobile phone users contribute 29 percent to the industry revenues and 45 percent of the profits; the lower end of the pyramid—71 percent of subscribers—contributes a mere 27 percent to revenues and only 15 percent to profits.28

The industry has further reduced the cost of serving the poor, especially the marginal cost, by selling prepaid phone services. This reduces the phone operator’s costs involved in credit checks, billing, and bad debts; instead of paying interest on working capital, the firm earns interest on the prepaid balances. Virtually all poor customers are prepaid subscribers.

In addition, in many developing countries there is a flourishing market for used mobile phones that further reduces the entry price for poor consumers. An innovative approach to reducing costs has been the shared-access model, whereby one person or organization owns the mobile phone subscription and rents airtime to others. Grameenphone has formalized this on a large scale through its Village Phone initiative, which makes microloans to poor entrepreneurs to buy a mobile phone, an external antenna (for better reception), and a discounted subscription. The Village Phone program has more than 362,000 operators in Bangladesh, and has been replicated in several other countries.

The poor have low costs because their usage of value-added and more expensive services such as financial payments, government services, downloading music, email, and Internet browsing is “extremely low.”29 In Bangladesh, 94 percent of the phone users who are poor further lower their cost by sending and receiving “missed calls,” that is, calling a number, letting it ring an agreed-upon number times, and then hanging up before the other person answers. Missed calls can be used to send a prenegotiated message (such as “pick me up now”); a relational sign (such as “I am thinking of you”); or to request a call back. This practice is growing rapidly throughout developing countries and is known by several names: beeping, flashing, pranking, and fishing. This is of growing concern to network operators since missed calls burden the infrastructure and do not generate revenues.30

The industry has clearly avoided the affordability trap and created a real market for mobile phone services to the poor. It has also avoided the distribution trap by selling prepaid phone cards through a large variety of retail shops, including general merchandise kiosks. It is even possible to electronically buy prepaid credits and to transfer credits from one phone to another, further facilitating distribution. Even though mobile phones can be used to deliver other services (such as public health) that would be socially valuable, the industry did not weigh down the BOP venture with multiple objectives.

 
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