Its not the financial crisis that has reduced profits in South Asia. Sri Lanka is a very good case study. This happened because policy makers did not understand the market. We have one too many operators.

Our base stations have too long payback times. This is because prices have gone below sustainable level. There is less and less elasticity in the market. In pre paid environment people only talk a limited amount of time. They dont expand usage as rates drop. In a high rate environment this does not happen because people would have ben constrained by high rates, reduction of rates when they are already low will only result in people saving excess. Taxes, in addition are also too high.

-Dumndra Ratnayake, Tigo, Sri Lanka

The price war in the asian region is a popular topic. In Sri Lanka, when things started going wrong in the last two years, the entire region should have looked at Sri Lanka and learned from our experience. The lower GDP south asian countries could have seen in Sri Lanka a crystal ball of what is going to happen. It sould have been even possible to extrapolate the Sri Lanka situation to the larger market and predict that elasticity in India would also start slowing down. Once you reach a certain penetration point and postulate it on the economic pyramid, any reduction in price will predictably cause reduced elasticity.

At this inelastic point of demand, consumers have the option of moving into other areas to spend their money, and i think this is what has happened.

-Hans Wijeyasuriya, Axiata, Malaysia

What we know

The BOP is a large group of people, we know they have low income. They can only spend a limited amount on communication. Their income is also irregular. So they can’t spend at a constant rate.
We know they have phones. Almost all of them have used phones at some point and about 45% own one already while a lot of others want to own one. We know that they are getting phones because companies have begun providing services to them and the market is expanding fast.

Making Money at the BOP

Low Average Revenue Per User (ARPU) leads us to ask the question; how do you drive down prices to appeal to the market and still make money? South Asia has hugely prepaid markets. From a consumer point of view it reduces credit mess and credit risk is reduced to companies. Billing costs for companies are also minimized. Printing and distributing scratch cards is also fast becoming redundant as electronic transfers take over. The retailers who bring in customers get rewarded for it only several months later. Companies have figured out a lot of ways to lower operational cost.

Network sharing and infrastructure sharing, outsourcing the management of their networks etc are methods of reducing infrastructure cost. With smaller countries, regional players aggregate volume and discover economies of scale. Employing skilled local management is also a method of reducing cost efficiently.

Broadband

In terms of broadband the same model is observably taking place. Again, a pre paid and sim based model is coming in fast. Limited consumption packages are increasingly becoming popular. We call it the budget airline model.

The challenge ahead

But heres the challenge. Even while based on this budget telco model two to three years ago Asian companies were doing well. 50-60 percent EBITDA levels were very common. They were way more profitable than a lot of companies operating in the West. But gradually they started making less and less money and now the region is in a situation where a lot of operators are now in the red.

Is this just a temporary blip caused by the global economic crisis? if that is the case a consolidation and the re-emergence of fresh economies of scale will probably be an eventual result of the where the market is heading.

The BOP are the people that make up the base of the pyramid. Therefore i like to refer to them as the base of the pyramid and not the bottom. At 5.3. bn people, its a huge potential market. In Bangladesh we have 150 mn people. Quite substantial.

A lot of MNCs and corporates are looking at this base. They want to develop community relations, brand their product and develop partnerships with local and national bodies and engage in CSR.

Grameen started in 1994 and with Village Phone. Community Information Center was developed with the GSMA development fund in 1996. We have a helpline that any GP susbcriber can call and get help from. With Cell Bazaar we began to use a lot of technologies like IVR, wap and internet.

A problem exists in enabling transactions because m-transactions are not lawful in Bangladesh. But credit card transactions which have been allowed by law is an enabler for e commerce transactions. A lot of people benefit from the activities we have initiated at the BOP like CIC.

Four things are of importance at the base; Affordability, Accessibility of product, Availability and Awareness. We are very serious about all these four things, especially awareness. We are approaching school students because they are early adapters. They talk about new things are are capable of getting other people involved in using them.

But effective Base of Pyramid services need savvy partnerships. For example, we tied up with the BBC to take their English program nationwide.

In summary, the market size is huge and there are challenges; literacy is low, infrastructure is not great. These are issues on which we need research in order to help us in the future.

In a study conducted among 579 million people in emerging Asia it was discovered that people are reluctant to use these services because they seem too complicated. Most people tend to download ringtones etc from their PCs and then transfer them to their mobiles. Cost is also a factor that limits Mobile 2.0 applications from being used on a mass scale.

Prerequisites such as ‘more than voice’ mobile phones exist. And people are interested in using these services, but service providers have not yet started to cater to their specific needs. Mobile 2.0 service providers must adapt to demand patters at the BOP. The potential is augmented by the presence of large unavailability of internet access and knowledge on internet use.

-Ayesha Zainudeen, LIRNEasia

Understanding people at the bottom of the pyramid and targeting them in a business and telecom sense is important. Communication and information produce positive benefits to poor people, and there is evidence to prove this. But there are also negatives to this.

Communication info can communicate to economic well being. It also contributes substantially to people’s personal well being and to capability building and human development.

The Happiness Index

Percieved well being  can be classed into 7 factors. Top of the list is family relations and community and friends. These needs are mostly communication intensive. Communication with friends and family is considered very important. Economic well being is only at the middle of the list.

Capabilities required for human development inclide income, health, shelter, employment, education, security etc. Capabilities can reside in networks as well as in individuals. a lot of what we can do depends upon the people we know and the capabilities of the networks we communicate with.

- Randy Spense, ESDA, Canada

Many attempts have been made at reducing the info search cost. But the focus of most of these attempts have been on selling. We looked at a strategy of information dissemination.

Consider a farmer who brings produce to the market – His difficulty is figuring out the price. There is no auction per se so he will have to walk around to this out. Prices in this case can differ from one end of the market to the other. We installed a few computers and some people who walked around with PDAs collecting this data. An information board was put up later giving out the price levels of each type of crop. This information is hoped to help him strategize whether he should wait if the prices are on the rise or sell now. To help farmers optimize their income.

The value chain of production and logistics in the case of small scale agri suppliers is linear and disconnected. What we need to look at is connecting it into a circular chain; closing the loop, in essense.

Harsha De Silva, LIRNEasia

Ashok Jhunjhunwala

AJ: If mobile trasactions have a huge role to play in smoothening the income of the bottom of the pyramid some form of loan is required at a cost below microfinance. How do you do risk assessment?

Harsha de Silva: You have hit the nail on the head. This is where the revolution will take place in financial inclusion. What we may see is poor people maintaining a marginal account in the bank with a set OD limit. There is always the function in people in these parts of the world of wanting to save. Financial institutions linking up to the bottom of the pyramid is where the revolution will begin. Good relationships with customers who need the service will ensure trust on an overall long term basis.

AJ: As soon as you start going towards the bttom of the pyramid any kind of text based interaction becomes harder. Case in point; India. People prefer voice based communication at that level. People are more comfortable talking to an automated computer than engaging in text based communications.

Chirag Jain: It’s literacy as well as language i think. The bottom of the pyramid will pay and pay for utilitarian services. One of the highest sales for Idea telecom’s music download service came from the rural areas of Bihar where people did not have access to any kind of entertainment. They paid money to listen to the same song over and over.

The urban poor live in congestion while another group lives in rural isolation. The estate poor are institutionally dependent i.e. on their plantations. All these three groups are desperately poor. But they all share a common goal; the need to save whatever money they possibly can for their children, if that were only possible.

One method of smoothening this state of volatile cash flow is by enabling credit transfers. i.e. borrowing money in lean times from someone who may have it momentarily in excess. Thereby smoothening the common cash availability of the whole.

Kenya, South Africa and the Philippines have already executed models based on such thinking. To make such a venture possible though, awareness is needed among the bottom of the pyramid. Without awareness people will never use it, and therefore no positive effects will materialize. The regulatory framework must step in to provide security and trust to enforce this. Market infrastructure such as agent networks can be used to bring market control closer to the people.

Adam Smith said  that the invisible hand rules the market. That may be true in a world of perfect competition but it doesn’t hold in the world we live in. Markets arise spontaneously from the institutional framework. There are three main transitions that happen when markets change or develop; Feudal to industrial, communist to post-communist, emerging to developed.

Capacity must be built through creating efficient institutions. Expertise must be brought from successful countries but ‘regulation by photocopying’ should be avoided i.e. good examples must be adapted with local requirements in mind. Competitive markets need to be built; they do not arise spontaneously. Capacity and skills must be built and sustained on an ongoing basis for a successful market to emerge. But in most developing countries this is a hard task to achieve. This panel will look at how competitiveness can be improved in developing markets while the arrival of a sustained effort at capacity building hangs in limbo.

Sherille Ismail

The challenges of conveying research results to corporate leaders are substantial. Questions that need to be asked are; how to better communicate the importance of research results to senior managers? Does in fact evidence get used within companies? and if so what type of evidence considered to be evidence? and how are decision with regard to strategy/policy really made?

There is need to understand what counts as evidence and what counts as input. Decisions are often based on gut feelings; stereotypes of customers esp those at the bottom of the pyramid. there are assumptions made on their lifestyles. Decisions are also based on market intel, purchasing patterns, customer demographics, call data records etc.

The reserach firm itself needs to be aware of their competition. There are a lot of flashy new age firms out there who communicate in a language that corporate leaders understand, a lingo that is non academic. Compatibility is a must. One must be able to connect with one’s target market

There is also the need to understand the priorities of corporate decision makers. All telecom provides look to differentiate as a main market strategy. A research needs to speak the tongue of the MNLs. You must ‘speak the gospel the way they understand it’. Senior managers are rarely exposed to cutomers at the bottom of the pyramid.

They need to be told something that they do not know. A research firm must be able to challenge their basic assumptions but also be able to produce concrete evidence to back up their findings. The research firm must go to the corporates because it doesn’t work the other way round. It must find channels to connect with corporate leaders. After getting through to them, it is important to give them some guidelines on how to understand your research. Communicating the value and potential benefit of using your research is a must.

Per Helmersen, Telenor Research and Innovation, Norway