Service/Wireless Device Bundles Have Potential in Emerging Markets

The two largest carriers in the United States, Verizon and AT&T, are ramping up efforts to woo more 3G-service customers by subsidizing already low-cost netbooks. This weekend, Verizon began offering the $300 HP Mini 1151NR for $200 after a mail-in rebate and a 2-year service plan. Service plans range from $40 per month for 250MB monthly download, up to $60 per month for 5GB of downloads. The plan is similar to AT&T’s, which will offer similar deals starting this summer. AT&T and Sprint Nextel (service provider for the Kindle reader) have both created new business units to expand their networks through new wireless devices.

Companies that have attempted to bundle services with wireless devices, both in mature and developing countries, are working hard to find the right business model. In the US, consumers may balk at committing to $1000 to $1,500 in service plans over two years to save $100 on a machine that connects readily (and at no cost) to public Wi-Fi signals, albeit for lower data speeds. In emerging markets, companies like MTS (Russia), Telefonica (Latin America), and Orange, Vodafone, and T-Mobile (Asia and Eastern Europe) have had to find willing, reliable subscribers among consumers with a shallow credit history and a preference for pre-paid mobile phone services.

Nevertheless, several factors make service/wireless device bundles an attractive opportunity in emerging markets. First, the wireless infrastructure in many urban areas is maturing rapidly due to continued investment and a strong competitive landscape, prompting increased demand for mobile web-enabled devices. Second, a comparatively low monthly service charge is a proven method of overcoming high initial capital costs and the lack of easy financing and credit faced by many emerging-market consumers. A decade ago, Telmex radically increased Internet penetration in Mexico by bundling PCs with fixed-line Internet services. And consumers in countries like Brazil and Mexico have amply demonstrated a willingness to buy consumer electronics in installments through retail outlets like Casas Bahia and Grupo Elektra. These retailers are leading candidates for partnership with service providers and device manufacturers, since they have already invested heavily in credit and payment tracking systems. Finally, hardware and software companies may also be supportive of service/device bundles if they get legitimate, branded versions of their products into the hands of a particularly wired sub-segment of the market. Operators will still have to do their homework to identify the right markets and craft pricing and partnership agreements that make everyone happy. But a well-conceived service/wireless device model may be a winning idea for many companies with the goal of increasing their revenues in emerging markets.

Build It and They Will Come (But Will They Watch?)

According to a recent report, mobile TV has arrived in India. Up to 6% of India’s mobile subscribers are interested in purchasing new TV-capable handsets to take advantage of new offerings like Nokia’s and (government-run telco) MTNL’s launch of mobile TV services. With 250 million mobile users and eight million new subscribers every month, India remains one of the mobile industry’s hottest markets. If the convergence of mobile technology and TV is the next killer application, no one wants to be left behind. Industry stakeholders in India and elsewhere are developing standards and grabbing spectra in anticipation of the mass adoption of mobile TV. The hope is that global sporting events such as the Olympics and the World Cup will encourage uptake of the new technology.

Indeed, televised games (and local language programming) appear to be key drivers of media growth rates. A recent report on African Broadcast Markets by Balancing Act, a publisher and consultancy with a focus on media and telecommunications in Africa, shows the rapid uptake in media consumption in African cities. But will increased media consumption extend to the mobile phone? On-the-ground experience in emerging markets makes Vital Wave Consulting skeptical of high demand for TV on phones. In most cultures, football matches and other televised games are social events that don’t lend themselves to small screens.

Vital Wave Consulting encourages companies to focus on how convergence is actually taking place on the ground. Keen observers see clearly that media, computing, telecommunications and the Internet are not being adopted at the same rate or according to the same usage patterns in emerging markets as they are in mature markets. There are many opportunities for hardware, software, networking, services, media and telecommunications companies to profitably participate in convergence. Whether or not mobile TV takes off in India, multinational companies would do well to keep their radar trained on mobile browsing, commerce and banking as well. Carefully and systematically observing on-the-go transactions will point to the future winners in a converged world.

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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.

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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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