How mobiles stayed massive — talking down the recession

Ben Garside's picture
Insight by 
Ben Garside
26 January 2010

How is it that mobile phone operators are proving - true to their name - too agile for the long arm of this recession?

Telecommunications operators may be calling for belt-tightening, but on the whole - as other sectors quail - the cellphone giants have had real reason for talking big. And developments down South are one of the key factors in that buoyancy.

In fact, 2010 has been hailed by Nic Fildes and Mike Harvey in The Times as ‘the year of the mobile'. According to a report covering 2008-2013 by Insight Research, the worldwide telecoms industry is expected to continue expanding over the next five years with a compound growth rate of 10 per cent predicted - mostly coming from the 70 per cent predicted increase in wireless broadband.

That's due in no small part by continuing growth of wireless services in emerging markets, which Insight said will offset the spending slowdown in the advanced economies.

And a 2009 report on the information and communication technologies (ICT) sector by the International Telecommunication Union (ITU) - the UN agency focused on information and communication technology issues - backed this up to a degree.

The report found that while IT equipment vendors, including those producing mobile handsets, may be first in the firing line of future investment cuts, growth in mobile telephony in developing countries has not yet been affected by the crisis.

Large emerging markets, including Brazil, India and Nigeria, registered record subscriber additions in September and October 2008. Mobile operators are also generally better placed to weather the downturn than fixed operators, as capital expenditure is a smaller proportion of their cost base and the incremental cost of upgrades to their networks is low. That is to say that rolling out the mobile network to new areas has a much lower cost for mobile operators per subscriber than for traditional land-line operators.

The demographic of the huge boom in mobile subscriptions in developing countries is also encouraging. For example, in India, new mobile subscriptions in January 2009 reached a record 11 million, with demand coming mainly from rural consumers.

Typically, they earn less than US$1000 a year and a large majority of them don't own land and lack access to landline networks.

As the blog Global Changemakers explains, ‘a mobile is a lifeline to the world, one that people in the most remote reaches the world can use to their advantage'.

The broadband gap

As the predicted boom in wireless (mobile) data services demonstrates, voice calls are not the only useful application provided by mobile phones.

According to a recently published report by UNCTAD (the UN Conference on Trade and Development), for many smaller enterprises in low-income countries the mobile phone has overtaken computers as the most important ICT tool, and mobile telephone penetration is growing the fastest in Africa and in some other developing countries.

Yet, says the report, the ‘broadband gap' between rich and poor countries is widening, with worrisome implications for economic progress in the developing world.

A 2009 World Bank report analysing the macro impact of broadband on growth in 120 countries from 1980 to 2006 shows that each 10 per cent points of broadband penetration results in a 1.21 per cent increase in GDP in developed countries, but a larger 1.38 per cent in developing countries.

So broadband Internet access is increasingly vital for effective business competition and trade. But, according to UNCTAD, a person in a developed country is now 200 times more likely to be a broadband user than someone living in one of the world's poorest countries.

Equally, the costs of broadband access vary enormously between developing countries - over US$1300 a month in Burkina Faso, the Central African Republic and Swaziland, against less than US$13 in Egypt or Tunisia.

Part of the cost differential is due to the need for satellite links because of a lack of high-speed fibre access. But looking at, say, countries along the east coast of Africa, which just received two high-speed submarine cables, we see that prices in the broadband market remain higher than they could be because of a lack of national competition. Additionally, even where prices have come down somewhat in the coastal cities, a lack of national high-speed network deployment means an increasing cost division for broadband between the large cities and non-coastal areas.

That may improve with better government planning - but the roll-out plans are likely to be put on ice until the recession eases.

Services for the poorest

In any case, broadband will be out of the reach of the poorest for a number of years to come.

Sixty-two percent of mobile handsets imported to low-income countries cost less than US$50 - and are unable to use the latest data-streaming technologies. Yet the innovation seen across the poorest countries is arguably more inventive than in saturated Western markets, perhaps because of the lack of access to high-speed Internet and the need for lower-cost solutions.

Services tailored to the poorest are proving most popular. Content that provides information and financial transaction exchange that works over the existing low-speed mobile architecture - for example, over a relay of mobile text messages - is improving the livelihoods of millions.

From finding out whether and when to plant crops, to checking market prices and where to head for the best deals, many of these value-added information services are being tailored for local markets across the South and helping to bridge the digital divide.

M-PESA in Kenya is one recent addition to a new form of mobile banking, allowing instant remittance transfers without the need for a bank account. Indicators point towards innovation in mobile services continuing, with new pro-poor services emerging, such as Uganda's text message-based marketplace, Google Trader.

The softer services supporting the technology should also receive attention. The multiplier effect of support networks established with sustainable development in mind allows for broader information sharing through, for example, combining a single broadband access point with text-based information distribution by a trained operator. This allows more people to share information, including those in remote villages.

And this does not all have to be a big donor project. Some of the innovative services that have been developed and fostered for low-income communities are great examples of successfully engaging with and improving the life-quality of lower income groups while still operating within a commercial model.

Telecoms companies need to move beyond just selling air-time credit and waking up to the potential of delivering information-rich services tailored to clients' needs.

Let's hope that 2010 really is the year of the mobile - worldwide.


Ben Garside is a researcher in the Sustainable Markets Group