Market Power: Mobile phones empower the base of the pyramid

Friday, December 7, 2007

By Robert S. Katz & Ana P. Escalante

For Babu Rajan, a fisherman in Pallipuram, India, a new mobile phone brings substantial improvements to his daily existence. Rajan used to arrive at port with his daily catch and take whatever price the fish dealers were offering, according to Washington Post reporter Kevin Sullivan. If he tried to find another buyer with a better price it would take too long, and his fish would spoil. Local buyers knew these fishermen had no choice, and they colluded to keep prices artificially low.

Now, thanks to ever-cheaper mobile phones, fishermen like Rajan call several ports and dealers while still at sea and find the best prices before deciding on a market. Armed with information, Rajan reaches port with the best offer, maximizing his profits and contributing to a more efficient marketplace overall. A study of market performance of South Indian fishermen by Robert Jensen and recently published in the Quarterly Journal of Economics showed that once mobile phones became available to Rajan and his compatriots, fishermen?s profits rose by eight percent on average and consumer prices fell by four percent on average.

So, if mobile phones are good for the fish market, are they good for other markets in the base of the economic pyramid, those with the least power to make decent living? Rajan is just one example of mobile phones? importance in improving the lives of the world?s poorest producers and consumers. The recent explosion in mobile phone service and use across emerging economies has had huge benefits for low-income businessmen and consumers alike. It?s not an overstatement to say that phone use leads to increased efficiency, productivity, and the free flow of information. Many living at the base of the economic pyramid still lack access to information, making their often?informal business environments inefficient and unproductive?a problem phone service addresses.

The recent boom in mobile phone sales worldwide suggests that there is demand for better access to information in low-income communities, and that the poor are willing to pay for it. Rajan exemplifies how information, whether provided free or for a fee, demonstrably improves the ability of base-of-the-pyramid producers and consumers to operate more productively and efficiently.

Mobile phone companies in developing countries are growing rapidly. The World Bank calculates that there are more than 1.5 billion mobile phone customers in developing regions?and that more than one billion will come online in the next two or three years. Research by the Groupe Speciale Mobile association, the trade association for more than 700 mobile phone operators in 218 countries, indicates that mobile networks now serve more than 80 percent of the world?s population, double the level in 2000. The report attributes this almost exclusively to “investment by mobile operators and the liberalization of telecom markets by governments,” and estimates that, “by 2010, 90 percent of the world will be covered by mobile networks.”

It is fair to conclude that there is a huge market for telecommunications in developing countries. A recent study by the World Resources Institute and International Finance Corporation, “The Next Four Billion: Market Size and Business Strategy at the Base of the Pyramid,” calculates household expenditures on information and communications technologies in many countries by income segment. According to expenditure surveys of low-income consumers, spending on information technology by the base of the pyramid is $51.4 billion per year and growing.

While anecdotal evidence shows that mobile phones are bringing new economic prosperity to millions of poor laborers, Vodafone?s corporate social responsibility report indicates that there is a statistically significant correlation between the increase of mobile phone sales and GDP growth: for every 10 new mobile phones per 100 people, a developing country?s economy can be expected to grow by an added 0.6 percent.

Not only do phones account for a huge market and help spur economic growth, they enable local base-of the-pyramid producers and service providers in rural villages and slums to access potential customers. With a mobile phone, independent plumbers, painters and other merchants in South Africa advertise services and reach new clients; in past years, these merchants had to advertise by standing on the roadside because landline phone service was too expensive for mosy of the customers.

Farmers in the developing world?like their fishermen compatriots?can now access market data and prices for their crops more easily using mobile phones. This phenomenon is exemplified by ITC e-Choupal in India. ITC, India?s largest grain sourcing firm, set up a network of Internet kiosks called e-Choupals, through which farmers sell their harvest at a fair price without making a time-consuming and expensive trip to government-run?and often corrupt?markets. This information assures that middlemen will have less opportunity to take advantage of the poorest at the base of agricultural production chains. Farmers and fisherman can now get accurate market data and bargain with the middlemen.

Producers are also becoming more efficient through the use of mobile phones. Rural and peri-urban merchants can manage their inventory from wherever they happen to be, allowing them to forgo long trips and drastically cut back on travel time. There is even a new field of business growing up around mobile phone maintenance for the base of the pyramid, including ?recharger entrepreneurs? who serve regions without electricity in Africa by charging a small fee to recharge mobile phones using their car batteries.

While the booming mobile phone market benefits producers, consumers at the base of the pyramid?those with the least earning power?also have a chance to win. Consumers are able to purchase goods and services from a wider range of vendors, comparing prices and selecting from a diverse array of products and services. One emerging trend on the consumer side is mobile phone banking.

is one such mobile banking service, offered by Safaricom Ltd. in Kenya. M-PESA allows users to deposit, withdraw, and transfer money to within and outside of the M-PESA network. G-Cash, offered by Globe Telecom in the Philippines, facilitates and capitalizes remittances of Filipino emigrants and offers comprehensive financial services. Wizzit in South Africa targets the base of the pyramid with financial services and recruits new customers by hiring low-income university students to run demonstrations in slums and rural villages. These are examples of efforts to turn a profit by serving millions of previously unbanked customers in low-income communities.

Mobile phones are also improving emigrants? lives by making it easier to transfer money across long distances. While technology allows families to keep in touch, new services have cut the cost of sending domestic and international money transfers so families can exchange money in a cheaper, more efficient way. The increasingly mobile labor force from such countries as Mexico, Nepal, India, Haiti and the Philippines is more efficient and better able to develop their hometowns.

Information technology infrastructure is operated and maintained primarily by the private sector. Mobile phones, information and communications technology are central catalysts for global development, and people at the base of the pyramid have much to gain from this technology.

Mobile phones are not a panacea. Mobile banking companies must cultivate their clients? trust and build confidence in this technology?or they will lose customers. Furthermore, mobile financial services companies must be careful to protect their systems from money laundering and other forms of fraud, a new challenge for many telecoms. For example, Pakistan is writing regulations targeting mobile financial services?these new regulations will apply to both banks and phone companies, a unique crossover.

Mobile phones produce positive economic and social development outcomes as they provide profitable business results. Four billion poor producers and consumers cannot join the global economy until they are connected to it. Mobile phones are increasingly being used in remote areas to make this connection. The sustained expansion of locally appropriate business models is the keystone to this technology?s service to the world?s poorest in new places and in new ways.

Source: World View Magazine (link opens in a new window)