Wednesday, September 26, 2007

Build on Existing Distribution Networks

Nokia Siemens Networks announced a “Village Connections” pilot project in Eastern Cape, South Africa last week. The initiative, part of a broader goal of providing wireless access to 5 billion people by 2015, is an attempt to lower the capital and operating expenses that keep most operators away from remote, rural villages. Wireless subscribers to this service are also expected to benefit from lower fees.
Nokia Siemens Networks (NSN) claims the reduced costs are enabled by an innovative “distributed architecture.” These technology and business-model advances push call control and customer management out to rural access points, each of which serves approximately 80 subscribers and runs on a basic computer equipped with a simple software application and wireless card.

With this initiative, NSN moves toward a potentially lucrative opportunity – a franchised service model for phone and Internet connectivity. NSN claims its GSM Access Points are “plug-and-play” and backed up by solar or battery power. The challenge remains, however, in identifying, training, supporting and managing a large number of geographically-scattered rural franchisees.

NSN (or other multinationals) will maximize their chances of success by identifying and securing good distribution partners. While every rural village has a small shop or retailer, networking companies don’t have enough boots on the ground to train entrepreneurs or install and service even the most self-contained access points at each location. They may, however, be able to piggyback on distributors who regularly supply soft drinks, beer, soap or other goods to those retailers. Distributors would gain a new revenue stream and operational efficiencies (i.e., shopkeepers could place orders using the new phone network). Village retailers could benefit from offering a new product line to their customers, beginning with phone service and extending to handsets, additional airtime and phone accessories. These shopkeepers are also the most likely to know how to run a business and protect valuable equipment. Schools might also be potential partners. In many rural villages, the school is the first (or only) place with a PC, electricity, adequate security and sufficiently educated personnel. And, if bureaucratic snags can be avoided, it may be worthwhile to partner with a government entity. Such alliances might help technology companies solve the rural distribution riddle.

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Wednesday, September 19, 2007

Mobile Phones as Productivity Tools for the Poor

Business Week recently reported what telecommunications companies and industry watchers have known for years - that mobile technology is helping developing-country entrepreneurs dramatically improve their businesses. It is clear that clever people are using their mobile phones to order supplies, check prices and find buyers. These efficiencies, the article states, are contributing to its rapid uptake of mobile technology among the world’s poor. In India, for example, there are six million new subscribers every month, and some are paying an entire month’s paycheck even for a low-end handset.

Press accounts do an admirable job of chronicling the mobile phone market’s expansion. Anecdotes of phone-wielding farmers finding the best crop prices before traveling to market could almost lull telecommunications investors into thinking that nothing could stop this spectacular growth. However, many handset manufacturers are already beginning to learn that new customers who come from ever-lower economic segments are making it harder to maintain high adoption rates and stay ahead of competitors.

The near-term handset market is comprised of 1.5 billion potential buyers living at or slightly above the subsistence level. The utility of a mobile phone may be clear to Business Week readers, but an upcoming research report by Vital Wave Consulting suggests that a mobile phone is still largely perceived as a luxury, or non-essential purchase, by would-be handset buyers in emerging markets. The report describes an opportunity for the mobile industry to re-position mobile phones as essential productivity tools, making them more appropriate targets for financing. Prospective buyers would be more willing to take on a loan to purchase a mobile phone if it was perceived as an integral part of their livelihood. Formal and informal lenders would also be more inclined to issue debt, believing recipients will repay loans with incremental income earned by using phones for business efficiencies and better customer outreach. Through appropriate marketing and the inclusion of various, existing financing mechanisms in their business models, sellers of mobile phones can accelerate and capture a larger share of the near-term handset market in developing countries.

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Thursday, September 6, 2007

Convergence Necessitates Mutual Understanding for IT & Telecommunications Industries

This week’s International Telecommunications Union (ITU) Trends in Telecommunication Reform, 2007 report concludes that poor regulatory rules are a key inhibitor to telecommunications development in some regions, and governments must put better licensing frameworks in place to achieve the full economic value of next-generation mobile communications.

Several recent articles about wireless spectrum releases in Russia and India underscored this issue. In Russia, high costs and technical/bureaucratic regulations are slowing the clearance of public spectrums (from military use), and may even push the launch of 3G services in Moscow past the 2009 deadline operators agreed to last April. In India, where over 7 million new subscribers sign up for mobile phone service each month, the Ministries of Defence and Telecommunications ended months of wrangling to free up spectrum for 50 urban areas around the country by December.

Operators, networking companies and handset manufacturers have been focused on high-growth emerging markets for years. The opportunity presented by millions more mobile subscribers and increasing data-service revenues is clear, and many of these companies are lobbying hard for the regulatory reforms advocated in ITU’s report. Research by Vital Wave Consulting, however, suggests that the 3G environment in emerging markets is far less clear to IT companies that could benefit from the convergence of data services and mobile communications. An upcoming report, Demystifying 3G in Emerging Markets, explains how forecasts of 3G penetration rates are muddied by inconsistent definitions of networks, variable handset functions, and even industry data from organizations with a stake in the success of 3G services. The report characterizes the top 20 emerging markets in a 3G Readiness Index.

As data services and mobile communications converge, IT companies that learn the telecommunications industry’s technologies, regulations and business dynamics have the best opportunity to form profitable partnerships and fend off competition. (Similarly, mobile industry players would benefit from studying the IT industry). A clear understanding of the 3G environment in emerging markets is crucial for any company interested in capturing revenues from the products and services enabled by broader network access. Businesses that lack extensive in-house research capabilities and relevant emerging-market experience risk misaligning resources based on insufficient or incorrect data. A better understanding of the 3G environment in emerging markets will help companies develop and offer relevant, valuable products and services on a broad scale.

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