NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

As I’ve noted before, what is often most fascinating about the work we do is realizing how adaptive the entrepreneurial spirit can be and how given a market with considerably less resources, entrepreneurs in emerging economies are finding creative ways to provide what were previously considered developed country services at heavily reduced rates. I thought about this when I was leafing through the latest issue of Forbes yesterday and ran across an article on Earthlink’s next big steps in ICT. Two of its new major initiatives are designed to lower the price of internet usage to make access more affordable for a wider audience. Earthlink has created a wi-fi cloud that will soon encompass all of Anaheim (with other cities to follow) which can be accessed for $22 per month. For the second initiative, the company is teaming up with a South Korean cellular provider to distribute prepaid packages or “buckets” of phone minutes at a reduced price. What really interested me in reading this is that an ICT company in the Philippines is already beginning to provide these services at a fraction of the cost. I wondered if Earthlink had already heard of SMART Communications…

The SMART model shows you don’t have to focus on high income segments to be a highly successful enterprise. The company boasts 22.5 million subscribers making it the #1 provider in the country. SMART has benefited from taking the lead on offering services to the BOP as 99% of its customers use its pre-paid service. The enterprise’s overwhelmingly popular products and extensive cellular coverage (reaching 99% of the country’s population) have caused its competitors to struggle for a share of the market by offering similar services. But SMART’s business strategy goes far beyond the BOP model; the company is not only recognizing the underserved as a mass untapped consumer base, it is refining that demographic though segmentation (audio). Bucket pricing is one example of this; the management team realized that some customers would be interested in buying prepaid minutes in bulk or purchasing one phone call in advance and began offering a day’s worth of unlimited text/call combos for as little as 12 pesos. SMART is not only asking what services it can provide to the BOP, it is offering unique products that cater to certain segments within that market!

The enterprise’s keys to success have thus been to provide lower-priced cellular services to meet the needs of the majority of Filipinos and create a huge network of retailers with immediate access to that majority. In a recent interview, SMART’s Ramon Isberto explained to me that the most important factor in creating a successful telecom company is scale. He explained how SMART had achieved this scale by placing cell towers in all but 13 of the Philippines’ 1,600+ municipalities. Secondly they have a network of over 800,000 local retailers connected to a central hub in Manila. These “sari-sari” retailers sell directly to customers in their local community, loading their phones with prepaid minutes using SMS technology. SMART pumped billions into this network but it has paid dividends; when the company released its “25/8” bucket pricing program, they didn’t even have to mass market it for the first two weeks. All they did was send a simple text to 800,000 retailers notifying them of the service.

SMART has major plans for expansion on the horizon that again tap into the power of its pre-existing network and vast consumer base at the BOP. As mentioned above, it is currently working to move into broadband internet, offering wireless access to remote communities that would otherwise go unnoticed. Ramon explains (audio) that this new venture arose from the company’s recognition that internet access had only previously been available in urban areas – and even then only specific sections of urban areas – while the vast majority of the country had no infrastructure and no access. SMART is planning to offer its retailers the opportunity to provide wireless kiosks in their community for 1,000 pesos per month, a cost easily regained in many of the areas the company has studied where demand for wi-fi will be high. The company is also creating mobile internet cafes, in which a set of fifteen wired computers can be dropped in the middle of a town relatively easily to provide access in areas ignored by other internet providers. Ramon tells a great story (audio) about opening one of these mobile wi-fi centers in Balangiga, where a provincial official was immediately ecstatic about the prospect of being able to bombard the US Congress with emails demanding the return of church bells taken during the American occupation.

The business of SMART Communications is all about tapping into the unmet needs of the many Filipinos living on relatively meager salaries. Is there a profit to be made here? Absolutely. SMART hasn’t become the country’s premier ICT through charity. But as Ramon points out (audio), his business has thrived by providing services to the BOP that will ultimately improve their quality of life and advance the country. The Philippines didn’t benefit from the tech boom of the 90s the way the other “Asian Tigers” did. With initiatives that seek to make internet access as widely available as cellular coverage is currently, SMART is creating the infrastructure necessary to promote economic growth that is beneficial to a broad portion of the population. And if Earthlink is any indication, they might become a trend-setter for American ICTs as well.