John Paul

Cellular Growth and Poverty Alleviation

Hardly a day goes by where I don?t read something about the rapid expansion of mobile phone services in emerging markets. According to one recent article, ?industry analysts forecast that 80% of the next billion mobile phone customers will come from emerging markets. Africa, for example, has the fastest growing mobile market in the world. The continent’s subscriber base grew by 66% in 2005 to 135 million users, compared with growth of just 11% in Western Europe during the same period.?

Craig Ehrlich of the GSM Association, a trade association representing more than 680 million mobile operators around the globe, asserts that ?the global mobile industry is now connecting more than one million people a day. Within a few years, the mobile industry will have more customers in the developing world than the developed.?

This pent up demand is ?putting pressure on infrastructure and handset providers to start tailoring some of their products to these emerging markets.? How they handle this opportunity will be one of the first examples of a mature industry retooling its strategies to meet market demand at the base of the pyramid.

So far, it’s primarily been about cost reduction. The wholesale cost of entry-level mobile handsets has fallen dramatically in the past 18 months–from $100 to below $30. Much of the credit for this belongs to the GSM Association, which has catalyzed the market for these low-cost phones through its Emerging Market Handset Program. Motorola was chosen to supply the first GSMA endorsed handset for this new segment, 12 million of which have been ordered since last year.

Other companies have followed suit. Last June Nokia introduced two new low-cost phones at an event in Kenya in a bid to double their African subscriber base to 200 million by 2009. Infineon Technology, a semi-conductor chip manufacturer based in Munich, Germany, has designed a chip that will enable mobile-phone handsets to cost under $20. And through an integrated hardware and software platform, Philips Electronics seeks to drive down total handset costs for this market segment below $15 by 2008.

So what does this mean for poverty alleviation? For one, the London Business School estimates that a 10 per cent rise in mobile penetration in a developing country can boost that country’s economic growth rate by 0.6 percentage points in a year. But it’s doubtful this figure fully takes into account the economic impact of the many value-added services that mobile phones enable. Our Activity Database documents several new initiatives using mobile phones to provide financial, agricultural, health and other information services.

Motorola is the first major handset manufacturer I’ve read about that’s creating such applications as part of its long-term BOP strategy. The company recently unveiled M-Wallet, a downloadable software application that allows users to pay bills, purchase products, or transfer money using their cell phones. The company is targeting the estimated $18 billion that is sent annually from the U.S. to Latin America by immigrants and migrant workers as one of its early markets.

My hope is that other industry players will follow Motorola’s lead by looking beyond just creating a low-cost platform, and focus more on the innovative applications that the mobile platform can support. These applications not only create additional demand for mobile services, but also help create the capacity to afford them.