• The outcome equation: ‘Is demand elastic to price change?’; this outcome is observable only if respondents own a mobile phone (binary outcome variable)
• The selection equation: ‘adoption’ equation (DeSilva et al.) – Modeling likelihood of mobile ownership (also a probit)
• The model also allows more theoretical exploration by separating adoption and use variables
  • Same variable might affect the two equations differently (example income)
  • There might be variables relevant to one and not the other

• Demographic characteristics (age, gender, education, income)
• Perceived benefits of mobile adoption (emergency, social and economic)
• Top five other individuals most frequently contacted who own a mobile (‘social influence’)
• Ownership of other electronic goods in the household (tv and radio)
• Access to electricity
• Remoteness of location
• Country dummies

Rohan – you refer to “savvy” users.  who are they? you refer to them as those who have more contacts (top 5) with mobile phones.  they are not necessarily those more sophisticated, they are just people who are more electronically connected. replace this word with someone more plausible.

HeckProb estimation of price elasticity of demand: significant variables – switching providers (those not likely to switch are more inelastic), number of sims, greater use in times of emergency (more elastic), top 5 contacts and competition.

Findings: Demand is elastic among more savvy users and those with more limited use:

• • Savvy users: Those who report a greater number of close contacts who own a mobile phone and those who use the mobile phone to participate in ‘competitions’ (the most popular among the list of services)
  • Limited users: Those who attribute a higher value to the emergency uses of a mobile

Concluding thoughts:

• Latent demand exists among more savvy/active users and more limited (contingency) users since both have demand that is price elastic
• However, users can easily switch between service providers
  • Competing on price can therefore lead to price wars, which could threaten survival particularly since profit margins are likely to be low in BOP markets
  • Loyalty to a service provider on the other hand appears to make demand relatively inelastic
  • Non price strategies therefore might be more effective in the long run for customer retention and survival

Rohan – the last slide suggests that we are interested in how companies can make more or less money; rather our focus is getting more at the BOP connected.

Sangamitra – i think if we are moving to private sector delivery of services of BOP useres, they have to survive, and hence how does one make sure that those who enter this market remain profitable. Then should this sector be regulated? These businesses should not resort to price cutting in such a way that drives companies out of business.

Christoph – i have conceptual issues.

Sangamitra – we don’t have panel data. With that limitation, we have use such models (contingent evaluation) to arrive at conclusions. w e are not looking at the magnitude of change, only whether it is elastic and inelastic. since we don’t know whether they understood the question

christoph – we can only say whether they would be willing to change or not, not elasticity.

Sangamitra – that’s usually an limitation of binary models

christoph – conclusions get falsified if one cannot talk about degree of elasticity. for those who don’t change use in response to price change, how come? it could either be because they didn’t answer the question, maybe were they not so poor.

christoph – it could be that the model is not relevant. also, if there was anything that looked nonsensical, i would check if there were outliers

sangamitra – i am less surprised by these findings; but it would be good to examine the profiles of those elastic versus those non-elastic.

sangamitra – what would be the regulator’s response to such findings? how would this relate to them?

nirmali – could setting some form a minimum price be a possible solution?

helani – yes, but situation not so simple.

ayesh – some form of bundling or price loyalty?

sangamitra –  yes.

ayesh – does it have implications on mobile number portability?

sangamitra – yes;

helani -it would be interesting to see if findings differ between pakistan where you can port numbers and those who don’t.

helani – however pakistan also has some of the highest multi-SIM ownership

ayesh – but qualitatives also showed that different in network coverage was one of the reasons why some of the multi SIMS.

helani – has anyone done analysis among those who don’t own mobile phones?

sangamitra – there is an estimate which shows the degree of correlation between unobservable factors in the model – we found that it was significantly negative; however, one must be cautious about making statements about such findings.

sangamitra – a lot of recent articles cite the Heckman model.