Closing the IT Infrastructure Gap, Opening Doors to Rural Markets

Rural areas in China, which have fallen further behind major cities during the country's long economic boom, are set to receive a major upgrade to their information technology infrastructure. The Ministry of Commerce, the Agricultural Bank of China and China Mobile recently announced a cooperation agreement to install and develop new platforms to help modernize rural areas by increasing businesses' and residents' access to information networks and boosting the appeal of these areas for outside investment.  The news comes as other developing country governments announce initiatives aimed at helping rural areas close the economic and infrastructure gap with their urban counterparts. For instance, India's budget for 2011-2012 included a $12.8 billion allocation to improve telecommunications and broadband in rural areas. South Africa has earmarked $65 million to expand rural broadband infrastructure and services. 

These investments underscore governments' realization that their large rural populations have been economically underdeveloped and socially disadvantaged by their lack of information technology infrastructure. Roughly half of the global population lives in rural areas, including 56% of China's population and 70% of India's population. Telecommunications investment has been overwhelmingly concentrated in urban areas due to their high levels of wealth and inhabitants, while rural areas have been left behind. This focus has constrained companies' access to rural markets, in addition to reducing access to products and services for people who live there. In Nigeria, even with significant foreign direct investment in the telecommunications sector, data access penetration has remained low, and the Nigerian government is being blamed for the lack of investment in broadband. Ultimately, national governments will have to take the lead in investing in and creating policies to support the expansion of broadband and other IT infrastructure to rural areas.

Companies looking to break into untapped rural markets would do well to pay attention to these governmental infrastructure investments, and the grant making trends of the regional development banks that often fund them. By understanding where and when they will be completed, they can position themselves to enter rural markets on the heels of these projects. In many cases, new rural infrastructure is built using the latest technology, providing opportunities to create next generation products specifically to meet the needs of rural consumers instead of recycling technology previously developed for urban markets. The rise of rural technology investment allows companies a unique opportunity to not only reach rural markets, but also leapfrog existing technology to develop innovative products for them.

Emerging-market firms dominate mobile industry..

by Karen Coppock
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The GSMA's Mobile Business Briefing and Wireless Intelligence teams just published a new report ranking mobile operators by the total number of subscribers worldwide.

The top 5 - by total number of connections - are:
China Mobile - 525M
Vodafone - 310M
Telefonica - 202M
America Movil Group - 187M
Airtel Group - 170M

Three of the top five are based in emerging markets - China Mobile in China, America Movil in Mexico and Airtel in India. Although Telefonica is based in the UK, its growth and ranking is largely based on its Latin American operations.

China Mobile's incredible size is mostly due to the immense scale of its home market - it is home to almost a fifth of the world's population. It did branch out and invest in a Pakistani operations in 2007, but has not made another investment since then and most of its subscribers are in China.

Telefonica and America Movil are de facto duopolies in the Latin American market. Telefonica has branched out and invested in operations in other European countries and even in Africa, whereas America Movil has stayed closer to home. America Movil, lead by Carlos Slim - who beat out Bill Gates for the title of the richest man in the world - has always had aspirations to tackle the US market, but has had little real success there.

Airtel jumped from 8th to 5th place due to its investment in Zain's African operations. Imagine it will be a while before it digests these new operations and is ready to make another significant investment, but it obviously has an appetite to be a global player.

Due to the vast size of emerging markets and the fact that for many of its citizens, it will be the mobile phone, and not a computer, that opens the door to the Internet, emerging-market mobile operators will likely continue to dominate the rankings in the years to come.

Bypassing the Network May Connect the Unconnected

This week’s nugget was unearthed when a little-known telecommunications company promised to bring to market a mobile phone that can bypass operator networks and enable users to text and make free calls to people within a one kilometer radius. Sweden-based TerraNet believes the technology addresses the need for communication in developing countries, especially in rural areas where operator networks do not exist, and could also aid in disaster relief. The technology can even be used for free phone calls outside the immediate vicinity if there is a broadband-enabled PC with Voice over Internet Protocol (VOIP) capability within range. Focusing on areas without existing operator networks, TerraNet intends to launch a commercial network in 2008 with revenue models based on licensing and handset sales.

Though TerraNet's technology requires special handsets, the company hopes it will eventually be a feature available on standard phones. Phone manufacturers, however, will have to overcome the objections of operators if they intend to offer a service that bypasses the operator’s network to make free calls. Indeed, many operators – focused relentlessly on competition from other operators and maintaining ARPU (average revenue per user) – may not be prepared for a competitive threat like TerraNet’s solution. Because consumer needs and user habits differ considerably in emerging and mature markets, a solution could quickly become formidable competition in emerging markets while not posing a threat in developed countries.

While TerraNet’s solution poses a threat to telecommunications companies, Vital Wave Consulting suggests that it may also present an opportunity for PC maufacturers and local entrepreneurs. Mobile technology that taps into a connected village PC for free VoIP calls could present not only a lifeline to the outside world but a strong enough value proposition to prompt community or entrepreneurial investments in PC-based connectivity for longer-distance communications. TerraNet’s solution is also a reminder that multinational technology corporations doing business in developing countries would do well to look far outside traditional technology and business model solutions to understand competitive threats and accurately identify growth opportunties.

Also in the news:

• Motorola loses ground because of ultra low-cost segment
• Everex partners with Zonbu for low-cost laptop
• OLPC signs Peru for 260,000 laptops

iPhones in Beijing? Well…maybe later

Close on the heels of Apple’s iPhone launch in England and Germany, China Mobile announced it is in talks with Apple to introduce their iconic device to the world’s biggest market. The stock market certainly liked the news – Apple’s share price jumped 10% on Tuesday. But we at Vital Wave Consulting are questioning the “mature-markets-first, emerging-markets-later” launch strategy.

Consider: no fewer than ten iPhone clones are now available in China. This is not just the result of lax IP protection; it is also an expression of pent up demand for the status and functionality of a high-end, multi-functional device. Emerging-market consumers have shown they’re more than willing to leapfrog technologies for the right value proposition (witness the millions who have foregone landlines in favor of mobile phones). This may already be occurring in India, where a combination of low phone rates and poor home Internet services has driven large increases in mobile browsing and, according to India’s Economic Times, a decrease in broadband subscriptions.

While Apple focuses on mature markets, China Mobile and other carriers have been strengthening their hand for the coming negotiations. China Mobile recently joined Google’s Open Handset Alliance, inked a deal with Research in Motion (RIM) to sell the Blackberry, and announced strong growth for their in-house music download service. (Sixty million out of their 350 million subscribers now use the service.) Apple, Google, Nokia, Palm, and RIM have an excellent growth opportunity in emerging markets, especially in urban areas where there is relatively strong infrastructure and a burgeoning middle class. However, the layer of gold around that opportunity will only get thinner with an “emerging markets later” approach.

Also in the news:

• Asus plans desktop Eee for ’08
• EBay launches microfinance lenders site
• Notebook makers pay attention to low-cost PC market