budget telecom network model


Our colleague Nalaka Gunawardene has written a summary/review of the World Development Report which this year focuses on ICTs, and included several references to Research ICT Africa and LIRNEasia research. Can a budget telecom like model help bring low cost internet within reach of South Asia’s majority of unconnected people? The Colombo-based ICT policy research organisation LIRNEasia has been studying this prospect for several years. As Rohan Samarajiva, LIRNEasia’s chair, wrote in 2010: “Broadband can be brought to the people by extending and leveraging innovative business models, as has been shown with voice telephony among the poor in South Asia. The lower prices and widespread coverage that are central to the model are also desirable public policy objectives.
We predicted the spread the BTN model from Asia to Africa. We saw the duopoly structure in Latin America preventing its spread to that continent. We really didn’t say much about Europe, except in passing. But it looks like the issuance of a fourth license in France (we did not even know France had only three operators! How backward!
First, you must read Steve Song’s self-described rant. He is a thought leader. Will do anyone good to read his thoughts. What follows is my response: This could be the beginning of a good brawl, so let me first thank Steve for starting the debate right, with some facts wrong and slightly in rant territory. Without these elements one would not get a lively debate.
According to the Nokia Total Cost of Ownership (TCO) study 2011, Ethiopia’s mobile prices bring it to the very threshold of membership in the “Under USD 5 club” of 11 countries. The TCO in Ethiopia in 2010 was USD 5.02. This is a puzzle and appeared to pose a challenge to the entire explanation of the conditions for the emergence of the BTN business model. Because Ethiopia is a member of another exalted “club,” the “bottom-ten” in terms of mobile connectivity.
We work with data, so we see the evidence: more people have phones, more houses have permanent roofs, more homes have refrigerators, and so on. Yet, the everyday conversations harp on the failures. We too talk about them, because we must, but we do so in the form of “what could have been better” rather than failure. Charles Kenny, an economist whose work we have been following for some time, has written a new book called Getting Better, dealing with this problem. Here is an excerpt from the review: Among the seven major regions into which the World Bank divides the planet, life expectancy has grown more since 1980 in the Middle East and North Africa than anywhere else (12.
LIRNEasia Chair and CEO, Rohan Samarajiva, will make a presentation on “The Budget Telecom Network Model and its Extension to Wireless Broadband” at a workshop entitled, “Mobile Broadband: Igniting the Service Revolution” to be held on 26-27 November 2010 in New Delhi, India. Organized by the IIMA IDEA Telecom Centre of Excellence (IITCOE), the workshop brings together several key senior executives from the corporate, government and non-for-profit sectors in India. The PPT presentation is available for download here. More information on the event can be found here.
We have been talking about the Budget Telecom Network Model for sometime. But as the Economist points out, the story is bigger than just telecom. South Asian innovation, driven by the need to sell to poor people, may remake the economic landscape in rich countries too. Most strikingly, Indian companies have produced a new type of innovation, variously dubbed “frugal”, “reverse” and “Gandhian”. The essence is to reduce the price of a product or service by a breathtaking amount—80% rather than 10%—by removing unnecessary bells and whistles.
It took us a long time to adopt a position on net neutrality, but finally we did, based on the lessons for policy we drew from the Budget Telecom Network Model (BTNM). We concluded that it was not appropriate for countries that relied on BTNM and the high volumes of use and extraordinarily low prices associated with it. Now it appears that two of the main protagonists of the fight over net neutrality in the US are crafting a compromise that will in effect end the debate. Google and Verizon, two leading players in Internet service and content, are nearing an agreement that could allow Verizon to speed some online content to Internet users more quickly if the content’s creators are willing to pay for the privilege. The charges could be paid by companies, like YouTube, owned by Google, for example, to Verizon, one of the nation’s leading Internet service providers, to ensure that its content received priority as it made its way to consumers.
A Sri Lanka newspaper article reporting on a talk I gave last week that was based on the Budget Telecom Network Model used the headline “Poor is the future.” Pity the newspaper did not pick up what I said about “more-than-voice” services offered by telcos making the poor less poor; not taking money from their pockets, but putting money in their pockets or at least allowing them to keep their money. The poor is the market for the telecoms industry, a former regulator said. Professor Rohan Samarajiva, former Director General of the Telecommunications Regulatory Commission (T.R.
I was invited to conduct a discussion at the Cabinet Office in Brasilia with senior government officials driving the Brazilian Broadband Policy that will shortly be announced. Representatives of the relevant ministries, ANATEL the regulatory agency, the public telecom operator and a local think tank participated in what proved to be a lively discussion. Given the policy was almost fully formulated, I decided to focus on performance indicators, a subject I was working on for both UNCTAD and one which had preoccupied me since the time I was a regulator. It is also a subject that LIRNEasia has developed considerable expertise in. My guess was correct.
We have been following the emotionally loaded net neutrality debate for some time with some detachment. Our research clearly shows that low prices are critical if the BOP is to join the Internet economy and that low prices are not sustainable without the adaptation of the budget telecom network model to broadband supply. One of the most controversial of the recommendations that came out of this work is that which said one should go gentle on regulating quality. The main reason we said that was because we believed that the poor needed access in the form of different price-quality bundles; that if high quality standards were imposed by fiat, the only victims would be the price-sensitive consumers who would get priced out. While we did not take an explicit position on net neutrality those days, we now have to, based on what we have learned.
Prof. Rohan Samarajiva, CEO of LIRNEasia, made a presentation entitled, “Equitable communication for all:  South Asia’s contribution“, at the recently concluded ITU-APT Foundation of India Annual Convention on “Equitable Communication for All” held on 22 March 2010 in New Delhi, India. The presentation used  findings on LIRNEasia’s Teleuse@BOP study on rising mobile ownership levels as proof of success of South Asia’s Budget Telecom Network Model, followed by telecos in profitably catering to BOP markets. The presentation goes on to examine how a similar model can be applied to provision of Internet services as well. View the full presentation here.
Prof. Rohan Samarajiva, CEO of LIRNEasia, was invited to speak a the 18th Convergence India, held from 23 – 25 March 2010 in New Delhi, India. His presentation entitled, “South Asia: Challenges of the Budget Telecom Network Model” presents data on rising mobile ownership levels from the Teleuse@BOP3 study, as evidence of success of South Asia’s Budget Telecom Network Model which has allowed South Asian telcos since 2005‐06 to make excellent (if highly volatile) returns by serving “long‐tail” markets of poor people by for example, investing in the “prepaid” market (lowering transaction costs) and focusing on revenue-yielding minutes rather than ARPUs. A full webcast of the event can be viewed here. View the full presentation here.
Rohan Samarajiva, will deliver one of two invited lead talks at ICTs and Development: An International Workshop for Theory, Practice and Policy, to be held in New Delhi, India, 11 – 12 March 2010. Titled, “How the developing world may participate in the global “Internet Economy”, his presentation examines the potential mobile telephony has in enabling low-income earners first-time access to the Internet. He argues that a teleco business  model similar to the Budget Telecom Network Model arguably responsible for dramatic reductions in mobile tariffs, could be similarly applied to the case of mobile internet. View the full presentation here. Other notable speakers at the event include Dr.
In the end, it comes down to the Budget Telecom Network Model. The recent Bharti 10.7 billion USD offer for Zain has depressed share prices and generated a big debate. But it really boils down to this: The trick for Bharti, which pioneered low-cost telecoms in India, will be to bring down Zain’s high cost base and win subscribers, say analysts — and to get subscribers to talk more using lower tariffs. Bharti is famous for its so-called “minutes factory” business plan — the low-cost, high-volume model that has made it India’s leading mobile company.
One way business models and innovations travel is through mergers and acquisitions. We have been waiting to see more African consumers benefit from the low prices and greater connectivity afforded by the Budget Telecom Network Model. Finally it looks like a big Indian telecom operator has got a foothold in Africa, with the transfer of Zain equity in a number of African countries to Bharti Airtel. Zain has fared badly in Africa along with other Middle Eastern operators perhaps because their home turf has been heavily regulated. Most acted as comfortable monopolists until only recently.
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