Communications development in
emerging markets: creating the right
ecosystem
Vodafone Group Public Policy
Emerging Markets Team
[email protected]
+44 79 79 55 00 54
Access: a key political issue
“South Africa's telecoms has reached a point where the number of SIM cards in
circulation is roughly equal to the population. That does not mean everyone has a
cellphone, since some people own two or three cards, but it means most of the
addressable market is covered.”
Pieter Uys - Vodacom CEO quoted in Business Day SA 18 November 2008
• In developed markets advent of competitive mobile services has “solved” access to
telephony for poor customers, especially in urban areas. It also made text-based
messaging widely available, and widely used, for the first time.
• What lessons, if any, are there for emerging market policy makers from significant
mobile communications growth around the world?
• In particular how can emerging markets, such as in Africa, be successful in providing
universal access to communications? What characteristics bring success?
• The key enabler of universal access is ensuring the communications ecosystem
support service delivery, including to poorer customers, and in rural areas. In other
words adopting a coherent set of policies which seek to achieve, and support, a
“competitive high-water mark” in access to voice and data communications.
• There can be a role for Universal Service interventions, which are well targeted and
based on pre-defined objectives. However, policy makers must ensure they are
getting the most from the market, before intervention.
2
What do we mean by access?
•
Access debates range across two different policy areas.
•
Policy makers are concerned to ensure access by lagging members of society to services
used by the majority of the population. Exclusion may be due to poverty, living in a rural
area, disability (or a combination).
•
There are also more general developmental concerns regarding more rapid / more
widespread deployment of new or “emerging” information and communications
technologies used by SMEs and/or high-spending consumers.
•
The core of universal service policy is how to address exclusion of lagging minority in
society in the services used by the majority.
•
In contrast how to encourage the deployment of new services (including ones not even
thought of yet) are really industrial / R&D policy.
•
Both areas are important and the first stage in addressing these in emerging markets is the
same: creating a robustly competitive communications ecosystem – where multiple
operators strive to serve customers and policies facilitate this.
•
Access will expand where policies enable competition to flourish, for example, spectrum
availability, but will struggle where policies weigh down the sector, for example, limits on
network roll-out or taxation which penalizes mobile.
•
Having the right communications ecosystem reduces the gap (if any) which either universal
service policy or industrial policy must subsequently fill.
3
1. Extension of successful market-led
inclusion:
Emerging market policy
makers have a choice
of ecosystem
• Eco-system based on effectively competitive
mobile networks
• Market flexibility: additional spectrum
availability plus re-farming; encouraging
commercial network sharing
Ecosystem so far…
• Repeat SMS “bundling” dynamics for new
services – key to rollout of internet access
• Poorly performing fixed / state-owned
monopolists & inadequate technology
• Tax at “average” national levels. Focussed
use of US Taxes on passive infrastructure to
extend rural and communal provision
• Entry of competitive mobile providers
• Dynamic mobile sector – addressing
progressively poorer telephony / SMS
segments in search of marginal profit
• Pre-pay commercial models dominate / no
periodic charge addresses access including
where call patterns focus on inbound use.
2. Intervention limits sector’s inherent
capabilities:
or
• Interventions in search of obsolete market
models (splitting services and infrastructure)
reduce value in integrated providers
• Handset subsidies target wealthy segments
but re-use / re-cycle of handsets increases
access throughout the market
• “Unified or converged” models which
complicate sector regulation while
simultaneously neglecting spectrum reform.
• Better than policy makers ever anticipated in
serving the poor, especially the urban,
insecure and recently migrated poor
• Voice termination model devalued – service
costs fall increasingly on poorer segments
whose total cost of ownership rises
• Sector cost base increases: taxation and
spectrum costs increase (to fund general
budget); US Tax imposed without clear
rationale: poorer users taxed to fund
emerging service use by few
4
Understanding the ecosystem: “convergence myths”
Developed markets are typically characterized by extensive fixed infrastructures.
1. Regulators have striven (over time) to increase the degree of competition to these
2. Key interventions have been: fixed incumbent interconnection including call termination
wholesale origination and unbundling
3. But competition has only emerged and been held above water by regulation. And future
direction unclear as fixed incumbents migrate to NGA to combat unbundling
4. Mobile has largely been on the sidelines of this process
5. Key evolution in developed fixed markets is not convergence (of fixed/mobile access)
but bundling of retail services and duplication of platforms.
Convergence more wished for than widely seen (to date).
Expect emerging markets to see:
1. The same bundling of retail services and duplication of platforms
2. But not convergence of (fixed and mobile) infrastructures
3. Expect mature market to be multiple radio-delivered systems, plus business orientated
fibre in city centres and business-dense urban areas.
Mass market service delivery will use mobile (or at least radio-based) model.
Regulatory models should anticipate this approach.
5
Understanding the ecosystem: regulatory regimes
Emerging markets are embracing reform intended to support “converged” services. We see:
1. Removal of vertical market-specific licenses, accompanied by introduction
of multiple, complex “unified” licenses based on horizontal lines of business.
2. Failure to incorporate competition / market power tests as a basis for economic
intervention.
3. Migration of spectrum licenses / allocations to new “unified” frameworks without
providing for technology and service neutrality or introducing real reform
4. Universal Service Taxation where purposes of funds collected are unspecified or
unclear and/or where funds are not utilized.
More regulatory instability than regulatory reform.
A better model is to adopt:
1. common technologically neutral authorizations for all parties removing need for
individual licenses;
2. all services permitted under a single authorization where many requirements would
only be triggered by either business activity or market power analysis;
3. separate spectrum permissions which are technology and service neutral and which
are tradable;
4. universal service approaches which first encourage the operation of the market and
only intervene to address exclusion above the “competitive high water mark”.
So a simpler model for regulators to manage and for providers to compete within
6
For radio-delivery: access to spectrum is vital input
Three objectives
1. Countries make
best use of existing
national spectrum
Positive activities
Ensure licence renewals /
reform continue spectrum
allocations.
“Converged” licence reform
leaves spectrum questions
open / uncertain.
Re-farming on technology
neutral, service “family” basis.
Uncoordinated spectrum
use.
Release free spectrum in
current bands to be used by
existing / new operators.
2. Countries provide
new spectrum
Allow spectrum in other
bands to be used, where
there is demand.
Consider national “Digital
Dividend” spectrum: who is
using UHF and for what?
3. Allow market to
operate flexibly
7
Negative activities
Ensure spectrum liquidity by
permitting trading.
Give regulatory support to
network sharing.
Suitable spectrum remains
idle, while networks subject
to congestion.
Spectrum remains in use by
providers who may place
low value on it / have low
incentives to operate
efficiently.
Increasing spectrum costs
above market levels /
Auctions primarily designed
to maximize state income.
Understanding the ecosystem: SMS “bundling”
Why is SMS so successful?
What to expect with new services?
• Regulatory discussion of universal
service rarely mention SMS.
• SMS approach can be duplicated in
emerging markets
• But SMS is an amazing universal
service success story. It is used by
more customers in the world than voice.
Total cost of ownership is low. SMS has
included a previously almost wholly
excluded group: profoundly deaf users.
• Network capabilities become available to
serve high-value segments, but once
available can be used by all, and will
progressively expand as demand grows.
• What dynamics drive this success?
–
–
–
–
–
–
High value to customers
SMS terminal capability bundled with voice
Terminals re-used / re-sold multiple times
Coverage follows that of voice
But usage characteristics different to voice
Low incremental cost to expand network
supply as demand grows
• A new way of communicating supported
by mainstream mobile business model.
8
• Handset capabilities enter high-value
segments of the market (and may be
subsidized) and percolate down to lowervalue segments – which is what povertyrelated inclusion is…
• Expect this to mean personal
transactions on the internet – web
browsing, e-mail etc. will become
available to poorer customers – as SMS
• Not universal fibre access at XMbit/s but
is a pragmatic way of providing mass
household and personal connectivity in
emerging markets.
Understanding the ecosystem: voice termination
Termination revenues are important to the economics of serving low usage customers
and to the viability of extending coverage to more rural areas. Many, typically lower
income, customers receive often receive calls from more affluent employers, friends or
family members.
Ratio of incoming revenue to billable revenue .
Graph 2: Ratio of incoming to outgoing revenue for subscribers in each outgoing value band
3.00
Punjab
Delhi
Mumbai
2.50
2.00
1.50
For these low usage customers, more revenue
is generated from terminating calls to them
than from their outbound calls
1.00
0.50
0
-3
40 9.9
9
80 79.
99
12 119
0
.9
9
16 15
0 9.9
9
20 199
0
.9
9
24 239
0
.9
9
28 279
0
.9
9
32 319
0
.9
9
36 35
0 9.9
9
40 399
0
.9
9
44 439
0
.9
9
48 479
0
.9
9
52 51
0 9.9
9
56 559
0
.9
9
60 599
0
.9
9
64 639
0
.9
9
68 67
0 9.9
9
72 719
0
.9
9
76 759
0
.9
9
80 799
0
.9
9
84 839
0
.9
9
88 87
0 9.9
9
92 919
0
.9
9
96 959
0
.9
-9 9
99
.9
9
10
00
+
0.00
Bill per month (Rs)
9
Taxation: the elephant in the room
Taxation
vs.
penetration
Voice penetration
100%+
Broadband 50% +
Average
compared to
national economy
High
Very high
Typical EU
countries are here
Voice penetration
80%+
Broadband 5% +
Voice penetration
50%+
Typical emerging markets are here
Some are here
Broadband > 5%
Indirect taxes
10
15-20%
20-40%
40%+
In summary
Widening communications access in emerging markets depends on
continuation and improvement of the current ecosystems
What policy
framework?
Strengthen the
ecosystem
Competition between vertically integrated providers
– single regulatory model based on world as is.
Intervention based on market power
Spectrum availability and reform
Understand how inclusion is supported commercially
both for new customers and new services
Are burdens consistent
with aspirations?
Taxation at significantly above average levels in the national
economy. Consider impact on new customers / services.
Role of US
intervention?
Poverty-related exclusion should be addressed in time.
Focused iUS intervention to promote more rapid rural access
Access policy is not a stand-alone area. All aspects of regulatory / competition policy
impact the availability of services and the resources used to support them.
11
Annex: A structured approach to
universal service
Move to focussed universal service interventions
•
Policy makers envisage 3 types of customers whose communications needs may not
be met by the market:
1. too poor to buy (poverty);
2. too expensive to serve (rural access); and
3. unable to use mainstream products or services customers (disability).
•
Mobile has a highly positive story to tell in terms of inclusion in all these categories.
•
Poverty examine historic trend in service take-up over-time. Understand roles of both
taxation and voice termination in growing / sustaining access. What do we expect in
next few years (credit crunch permitting) and once we return to trend? The gap in
emerging markets will be smaller than you think and can be addressed through
informal, shared provision.
•
Rural access – also positive – compare with historic fixed service deployment in
emerging markets. Allowing the market to operate will go a long way to continue this
trend. Again what is the impact of taxation and voice termination policy? Rural access
Targeted US taxes may assist in the supply of shared passive mobile infrastructure in
rural areas associated with communal provision.
•
Disability press operators to ensure availability of offers to key segments: “speaking”
software for blind customers; SMS / IM for (literate) deaf customers. Mobile has
already meant that wheelchair access has disappeared as an issue.
13
1. Customers who are too poor to buy
• A primary area of social / regulatory concern in many industries.
• In 1999 Oftel identified customer groups “whose needs might not be met without
the intervention of the Regulator”. These were: people
– “on low incomes;
- who use the telephone infrequently;
– in short term rented accommodation; - in remote rural areas;
– in areas of urban deprivation;
with disabilities; and
– of pensionable age (principally of concern when they fall into one of the
above).”
• By the early 2000s mobile service competition had delivered for 4 of these 6
groups. Pre-pay services with no periodic charge have essentially “solved”
telephony access for poorer, more vulnerable groups in developed markets.
• Few customers in core EU counties now do not have telephony access for cost
reasons. There is no poverty-related digital divide in mobile in developed
markets where Vodafone operates. Plus universal SMS bundled “for free”.
• Emerging markets can replicate this by adopting the right policy approach.
• We now see scope for similar competitive dynamic with 3G offerings. Expect to
see pre-pay data services – delivered by mobile – providing a high proportion of
internet access among poorer consumer segments. Three key dynamics –
recycle / re-use of subsidized equipment from higher-end segments, replication of
the SMS effect for new services and competition between mobile and fixed USB /
PC build-in-broadband offerings.
14
2. Customers who are too expensive to serve
• Competition in mobile means being able to make and receive calls successfully
is the vital non-price issue.
• Extensive rural/urban migration means that rural coverage can drive service
choice among urban consumers
=> coverage is a key dynamic of competition and drives wider rural access
• Also real market outcomes show geographically averaged prices so in
practice mobile competition bites equally in rural (expensive to serve) and in
urban (low cost to serve) regions. Averaged prices is not something commonly
seen in other “vital” industries such as for food or fuel supply.
• Not as unambiguous as the “virtual elimination” of poverty-related access
problems, and the subject of interventions in certain markets, but still a public
policy success.
• Scope for similar competitive dynamic with 3G coverage.
• Can encourage this dynamic by:
– Spectrum reform (re-farming / releasing new spectrum / trading etc.);
– Permitting network sharing between operators on commercial terms;
– Using universal service funds to invest in passive infrastructure (masts, towers etc in
unserved, but inhabited, areas)
• And – potentially – support communal provision of pay-phones, data access in
the meantime.
15
3. Customers unable to use mainstream services
• Disabled customers are not a single group. There are a range of distinct segments
which need appropriate product responses.
• In particular, contrast age and disability. Elderly customers’ needs are not distinct from
the needs of the general population – unless as a consequence of disability.
Penetration rates in adults reflect lifestyle choices and marketing and should not be a
political or public policy concern.
• To increase inclusion among disabled customers operators should offer propositions
(terminal equipment / handset and /or accessory and price plan) designed to meet the
needs of customers in key segments:
• Development of these propositions needs to take place against a market background
of increasing choice of communications approach – for both able-bodied and disabled
customers.
• In the past telephony was essentially the only telecommunications service. This is no
longer true with text and internet-based communications now as important – and a key
reason why the inclusion of disabled customers has increased over time.
16
Focus on disability
• In practice priority segments are decided
politically to reflect perceived exclusion /
disability group lobbying. So (in order):
Increasing influence
2/Associated groups: deaf-blind & speech
impaired customers / with partial hearing.
3/ Blind customers / with partial sight
4/Elderly customers may also be seen as
important. However, not obviously excluded
- special provision may be more about
home care in developed societies than
requirements in emerging markets
• Lack of “voice” marginalizes groups such
as customers with poor motor function or
cognitive impairment.
• Operator response – ensure a range of
products offered which meet the needs of
disabled customers more widely
17
Increasing segment size
1/ Profoundly deaf customers
Poor grip /
motor
function
Partial
sight
Elderly
Cognitive
Speech
impairment impaired
Partial
hearing
Profoundly
deaf
Blind
Deafblind
Example propositions Vodafone Spain]
[source: Mobile “Talks” /
Blind /
Visually impaired
(> 800.000)
Deaf /
hard of hearing
(> 900.000)
18
Mobile Magnifier
Blackberry VF Accesible IM
service
Around 3000
customers
65+ años /
limited hand ability
(> 7 Millions)
Emporia
Alzheimer patients
and dependent people
(> 800.000)
Mobile Tel y
Simap