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Monday, May 5, 2008

Utilities at the Base of the Pyramid

By Al Hammond

Stealing Power in the FavelaIt was sunny, and tempting to sit outside at the University of San Diego to enjoy the weather. Inside, however, a group of global practitioners and scholars - organized by Patricia Marquez of USD and Carlos Rufin of Sussex University and Babson College - were discussing the role of utilities at the Base of the Pyramid. (See 'attachments' at the end of this post, where I have uploaded the meeting's full agenda as a PDF.)

Utilities provide basic services - telecommunications, water, power - that are essential to people's lives and increase their productivity. But a decade ago, many utilities in emerging markets were failing?service to low-income communities was poor, and many of their customers simply didn't pay or acquired the service informally.The picture that emerged in San Diego, however, was more optimistic. A number of utility companies have engaged BoP communities and increased their willingness to pay, in return for investment that improved service quality. Codensa, a power utility in Columbia with 400,000 non-paying customers (out of a total of 2 million), reduced non-paying customers dramatically. Manuel Bueno has an excellent analysis of the Codensa case in his post, "The Codensa Case: Electricity and Related Services for the BOP in Colombia," from December, 2007. And mobile phone companies improved service and access to service dramatically compared to legacy fixed-line telecom companies (sometimes another branch of the same company).

But the larger question that emerged from last Friday's meeting was whether utilities and other infrastructure companies could become platforms for much wider service delivery to the Base of the Pyramid. Again, Codensa is a poster child: It utilized its large customer base and its knowledge of each customer's payment history to launch a micro-credit program that has enabled many of their customers to buy washers, refrigerators, and other home appliances. As a result, the company?s reputation has improved dramatically, its revenue base has expanded, and its customers feel their lives are better. Likewise, mobile telecom companies look likely to become the dominant platform for delivery of financial services to the BoP. A few water and sanitation companies have started to offer health services. The potential, in short, is to leverage existing infrastructure and often large customer bases.

There was lots of debate about how to come up with such win-win models, the best ways to work with existing utility companies, the sustainability of the model under economic shocks, and the risks to companies and communities of their growing inter-dependence. But the thought that seemed to carry the day was the potential power of both existing utility infrastructures and new ones - such as franchise pharmacy chains as health care distribution platforms - to provide a much wider range of goods and services to underserved communities.
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