LOW-INCOME TELEPHONE USERS IN ASIAHello, can you connect us?
By Francis Hutchinson & Lorraine Carlos Salazar, For The Straits Times
Source: The Straits Times, June 12 2007 – Review Section
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NEW research on the use of telecommunications among low-income groups in India, Pakistan, the Philippines, Sri Lanka and Thailand challenges the conventional wisdom that, in developing countries, customers for high- technology goods are to be found only among high-income groups.
According to a multi-country survey, the poor are already accessing telecommunications and form a large untapped market with significant unmet demand. This wide and deep client base offers vast opportunities for enterprising telecommunications companies if they can develop appropriate business models to cater to them.
The survey was undertaken by Lirneasia, a Sri Lanka-based research organisation, and focused on the lowest two socio-economic quintiles, as defined by the chief wage earner’s educational and occupational status. More than 8,650 people between the ages of 18 and 60 were interviewed about their access to, and use of, telephones. Half of those interviewed kept a diary of their telephone use over a two-week period, and focus group discussions were held in each country.
The study’s first finding was that the majority of the poorest people have access to telephones, even if they do not necessarily own them. More than 90 per cent of respondents reported having used a telephone in the past three months. In fact, over 75 per cent said they could access a telephone in under 10 minutes (either a fixed line or cellphone they own, borrow or which are available for public use). Surprisingly, access rates in rural and urban areas were more similar than expected.
That said, there are significant differences in how telephones are accessed. In South Asia, about 30 per cent of respondents in Pakistan and Sri Lanka and 70 per cent of those in India used a public telephone. In South-east Asia, more than 70 per cent and 55 per cent of respondents in Thailand and the Philippines, respectively, had their own cellphones. While cellphone penetration is lower in South Asia, it is still significant. Slightly more than 20 per cent of respondents in Pakistan, 18 per cent in Sri Lanka and 8 per cent in India reported owning a cellphone.
The study also found surprisingly high levels of telephone use among the very poor. People in India and Pakistan averaged more than 30 calls per month, and those in Sri Lanka and the Philippines averaged 23 and 16 calls, respectively.
The calls made were local for over 80 per cent of respondents in the Philippines and Thailand, over 70 per cent in India and Pakistan and 60 per cent in Sri Lanka. Local long-distance calls made up the balance, with very few respondents making international calls.
Across all countries, the calls were short, at about two to three minutes each on average. Except in Thailand, some 80 per cent of respondents made telephone calls for social purposes. Business calls made up less than 20 per cent, except in Thailand, where these accounted for about 30 per cent.
The unmet demand for both fixed lines and cellphones is substantial. More than 80 per cent of respondents in India, 64 per cent in Pakistan and 59 per cent in Sri Lanka do not own either a cell or fixed-line telephone. The figures for the Philippines and Thailand are lower, at 38 per cent and 23 per cent, respectively.
In the future, growth is likely to be in the cellphone sector. While fixed- line telephones offer lower unit costs per call, it is unlikely that infrastructure will expand quickly enough to meet this demand. In addition, it would appear that cellphones are more popular among the poor, with two-thirds of Pakistanis and Indians and 90 per cent of Filipinos who do not now own a telephone stating that they intend to buy a cellphone. The exception is in Sri Lanka, where slightly more than half of respondents would prefer a fixed-line telephone.
The study also challenges the notion that the poor are unable to afford, or are unwilling to pay for, cellphone services. Of those who do not now own a cellphone, about 40 per cent in India, the Philippines and Thailand plan to buy one in the next two years. In Pakistan and Sri Lanka, this figure is above 50 per cent.
Furthermore, the cellphone market can grow vertically and horizontally. Besides attracting new consumers, existing owners or households can get extra connections. About 20 per cent of households in Pakistan and Thailand have more than one telephone, while the figure is more than 40 per cent in the Philippines.
Thus, there is scope for millions of new connections to be established, including potential for the following:
1.5 million lines in Thailand and Sri Lanka.
9.7 million in the Philippines.
30 million in Pakistan.
100 million in India.
While these countries offer wide and deep markets, they also pose a challenge to telecommunications companies, which may have to alter their business models. Besides being extremely cost-conscious, poorer clients have different needs.
There is high demand for cheaper handsets. In order to lower costs, purchasing second-hand telephones is an established practice – over 25 per cent of respondents in Sri Lanka and India, about 33 per cent in Pakistan and Thailand and 40 per cent in the Philippines use second-hand cellphones.
These consumers have less capacity to pay high monthly charges, as average telephone spending among these income groups is under US$10 (S$15) a month. Such users in Sri Lanka, Thailand and Pakistan spend more than US$7 per month, and Indian consumers spend an average of US$5. Subscribers in the Philippines spend rather less, on average US$2 per month.
Monthly payment models will have to evolve. More than 90 per cent of respondents in all surveyed countries use pre-paid payment plans, the most cited reason being to limit or plan their expenditure.
While revenues per consumer for traditional services may be lower in the surveyed group, this market segment is ready for a whole gamut of new value-added services. While more than nine out of 10 respondents have used a telephone in the past three months, 14 per cent of Filipinos, 29 per cent of Sri Lankans and 36 per cent of Thais and Pakistanis in this socio-economic group have not heard of the Internet. This figure climbs to 72 per cent in India.
Thus, as telecommunications operators in the Philippines have found, consumers in this group are able and willing to use cellphones for services traditionally restricted to the Internet, such as sending remittances, making reservations or getting weather forecasts.
Contrary to popular perceptions that the poor in developing countries are unable or unwilling to access telecommunications, the survey shows the opposite to be true. Poor consumers in South and South-east Asia already access telephones, often on a daily basis, and are willing to invest in cellphones. The market potential for telecommunications equipment and services, if correctly tapped, is huge, but usage patterns and consumer preferences will challenge traditional business models.
Francis Hutchinson is a consultant for Educo, an international project management firm specialising in the education and ICT sectors.
Lorraine Carlos Salazar is a visiting research fellow at the Institute of Southeast Asian Studies.
The views expressed here are personal.