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In Africa, TCO rules
As several high-profile events in Africa have shown, rural connectivity depends on one factor: affordability.
It was as if their mission statement had come to life. The Commonwealth Telecommunications Organisation (CTO) sees one of its primary tasks to “facilitate the successful development of telecommunications and other businesses to support social and economic development objectives of governments and civil society.”
And the CTO’s recent ICT Summit 2008 in Abuja, Nigeria, which brought together industry experts, government ministers, ambassadors – stakeholders of all kinds – did just that.
At the summit, held in cooperation with the Nigerian Communications Commission and the Nigerian Ministry of Communications, these stakeholders discussed a variety of issues – from the importance of benchmarking to the latest technology – but when the three-day event was over it was clear that one issue rose to the fore in most, if not all, of the sessions –Total Cost of Ownership (TCO) – the amount of money required for people to buy and use connectivity technology.
Affordability the key issue
TCO of mobile telephony is an especially important issue in emerging markets, where it varies dramatically from country to country. For instance, TCO in India, Bangladesh and Pakistan is less that USD5, whereas Morocco, Cameroon and Kenya see TCO well above USD20.
Not surprisingly, the lower the TCO the higher the market penetration, so it’s understandable that NGOs such as the Commonwealth Technology Organization – responsible for helping connect rural populations – would single out TCO as a barrier to growth than must be overcome.
Components of TCO
TCO can be divided between the cost of the devices, the price of the service and the duties levied on both. Handset makers have successfully brought down the cost of the handset by 33% since 2005 and are continuously working to bring the cost down even further.
Operators too need to deliver services with the lowest possible operating and capital costs to be able to create a sustainable business and help attract customers in emerging economies. The best solutions will rely on innovative business models that make serving even low-income consumers profitable. This is not as farfetched as it sounds: innovative business models that connect low-income users have brought success to forward-thinking operators in India and other parts of Asia.
“Low TCO demands a sharp focus on reducing the power consumption of base station sites, sharing site infrastructure to reduce capital costs, and solutions that cut backhaul costs. Already we are deploying practical solutions that address all these issues. Continuing innovation will help to drive costs down even more in the future, enabling operators to become more aggressive in expanding their services to lower and lower income groups and still remain profitable,” says Frank Oehler, Head of Business Development at Nokia Siemens Networks.
And tax policies, too, are an issue. According to a GSMA report on taxation in Sub-Saharan Africa: “Mobile phones are no longer an expensive luxury and should not be treated as such by regulators, governments or any other stakeholder. Yet in many countries high taxes on mobile communications are threatening to suppress economic and social development.”
A good example of this is Kenya, which as you will recall has one of the highest TCOs in the study’s eighty emerging markets.
In another report titled “Taxation and the growth of mobile in East Africa”, the GSMA argues, “By reducing taxes, more Kenyans will connect and use mobile services, tax receipts will increase in the medium to long term and GDP will rise. For example if the excise tax were halved in 2007, by 2017 total tax receipts could increase by up to 5%, with revenue neutrality achieved after 6 years. Penetration would also increase by 6% above the base case. Moreover Kenya’s GDP could rise 1.3%.”
Experience Days, Kenya
The issue of taxation and its relationship to TCO was also addressed at two Experience Days, hosted jointly by Nokia and Nokia Siemens Networks for customers Kenya Data Networks (KDN) and Safaricom in the second week of October. At these events attendees discussed the importance of a light regulatory touch from governments, but focused more on the need for operators to reduce CAPEX and OPEX, passing those reductions along to consumers to help capture the so-called “long tail” (also known as the 80-20 rule) which suggests corporations can make enormous profits selling their goods and services more people with lower income..
In a presentation titled “Success Through affordability” Nokia’s Sanna Eskelinen used case studies and highlighted best practices from country to country as well as operator to operator to prove her point that “With the right business model and product and services mix and underlying technologies lower income segments can be very profitable.”
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expansion of ethiopian telecommunication with out quality service
ethiopian telecommunications is expanding its with colaboration of china company ZTE but the quality of sevices is not attractive ,even getting the network is very hard in some town ,preveously the Nokia company was done very good work
potential
Indeed the low income marke provides potential by:
1. its sheer volume
2. higher margin levels
3. potential for innovation which as an innovation blowback might lead to business advantages in higher income markets.
By the way, is the presentation “Success Through affordability" from Nokia’s Sanna Eskelinen available online?
Affordability: win-win-win to all
Affordability is really the key challenge in reaching the next billion mobile consumers. As we know, the Total Cost of Ownership of less than USD 5 enables the majority of the lower-income consumers to use mobile communications. A number that is still quite far from the emerging market average of 13 USD.
Four countries is South East Asia excel in offering affordable mobile communications. Favourable regulatory environment and innovative operator strategies and business models have resulted not only in affordable communications for consumers but also profitable business for operators. Read more about the study findings from the latest Expanding Horizons: www.nokia.com/expandinghorizons
4A framework:Affordability, Acceptability, Awareness and Availability
Hi Sanna,
Thank you for mentioning the article in Expaning Horizon. From this, I could get hold of the findings of Lirnasia on their website.
I 'm interested in your remark that affordability is key. Do you mean this is the most important issue in terms of priority? Let me elaborate my question.
I have read some articles from authors like Jamie Anderson (e.g. "a strcutured approach for bringing mobile telecommunications to the poor") who argue that there are (at least?) four aspects to consider for reaching the BOP: Affordability (TCO / pricing/pre- or post pay) , Acceptability (responding to socio-cultural dimensions), Awareness (marketing/ how to reach target audience and inform them about products and services) and Availability (distribution).
Is in your opinion the biggest or first hurdle to take the affordability aspect or do you see another order of priority? Okay, the BOP people need communication and connectivity but are there other things governing the offered value proposal?
Furthermore, where in this forum here is the topic of human-centered design? It is interesting to read about research conducted by Nokia on the usage behaviour across the world (e.g. Jan Chipchase) and it seems ot me Nokia Siemens is using those findings in the product and service development. Is there more you can share with us about this?
Best regards!
FIGHTING CYBER CRIMINALITY IN CAMEROON
It will be a great thing if the Common Wealth can partnership with the civil society to fight e crimes.
In Cameroon, i-Vission International is working very hard with local and international partners to eradicate cyber criminality which is terrorizing citizens from using the internet and ICTs as a whole.
Forums are organized in this wise. One of such forums is that organized by i-Vission International with theme: THE IMPACT OF CYBER CRIMINALITY ON THE ECONOMY OF A DEVELOPING NATION, to take place from the 19th - 21st of February 2009 in Douala Cameroon. Details at: www.ivission.net
High Volume
Sheer High volumes require intelligent low cost products and hosted services..this can increase the level of acceptance for niche services on the go
Affordability, Access, Competence and Motivation
Interesting discussion has emerged around the importance of affordability and other barriers for adoption. Affordability is and will remain as key challenge. The cost of owning and using mobile phone bundled with the transparency of costs is the fundamental challenge in reaching the next billion of consumers.
But it is true that affordability is not the only challenge. Access, competence and motivation play a also roles in adopting mobile communications and even more so in using it efficiently. So yes, in addition to be able to afford the mobile phone and related services we need to have the capability to use the service, access the service and see the real benefit of the service.
The importance of motivation and immediate benefit of the service is pronounced in emerging markets and among lower-income consumers. When faced with limited financial assets, all purchases must be justified in terms of delivering tangible and practical benefits - with the greater good of one’s family and community.
There are several examples of the impact of voice service changing the lives of people and information services (such as Nokia Life Tools) are expected to bring further life-enhancing benefits. Every real life story is different, but yet emphasize the importance of mobile communications.
And importance of motivation does not end at consumer level, but is vital also among governments, investors and player in the ecosystem. Deployment and usage of new technologies, innovation and implementation of new business models all help driving up the economic growth and employment and improve the wider socioeconomic wellbeing.
TCO or something else what matters?
Hi Sanna,
Thank you for your interesting reply, which matches my latest comment here.
I am wondering whether we should speak of TCO (total cost of ownershop) or a term like Total Consumer need fulfillment, ehh the abbreviation is not so catchy as TCO..."TCNF", but you understand what I mean. It includes the financial part of TCO.
regards,
Anand Sheombar
Towards information era
Hi all bloggers,
Very interesting comments. Affordability really matters for the individual. The personal income is limited and sporadic, and the money spent on a phone can often be quite an investment. Therefore affordability partly generates motivation. However, there is more to motivation and that is the personal value of the information.
From the motivation and competence perspective the basic voice service is easy to understand and quite easy to learn: the service is always in a local language (speech) and you are motivated to use the service (you get hold of person you want by making a phone call).
Now, as we are moving forward to an information era in emerging markets we are facing a situation that the value of internet is yet to be discovered. There are very encouraging news from the market, one interesting example being a project, where a PC was left in a village and in the end of the project the people in the village had learned to use the computer and browse internet just by teaching each other. Exactly this learning from the peers is very important element as we are taking the internet for the next billion.