Communications and Society Program

The Emergence of Mobile Phones: Lessons from India (and Elsewhere)

Although the growth of mobile telephony is a truly global story, there are important regional differences in how the technology has evolved in different countries. Kas Kalba, President of Kalba International (an international telecommunications consulting firm), described some of the findings from his research on the global diffusion of mobile phones. Kalba found, for example, that even though “the world as a whole is rapidly adopting mobile phones,” there is a “baffling degree of variation in how they have been adopted in different parts of the world.” One striking difference between the adoption patterns in more affluent developed countries relative to less affluent developing countries is that in the latter—particularly in rural areas—mobile phones initially are being acquired not by individuals but by households, many of which have never had a conventional landline. In many poor rural communities, Kalba noted, mobile phones are kept in the home and are used by all members of a household, mainly for emergency calls. Only on weekends or on special occasions will a young person get permission to take the phone out of the house.

Thus, average household size can be an important determinant of the rate at which mobile phone penetration grows. In a recent paper, Kalba suggested that one reason that China, initially at least, adopted mobile phones more rapidly and broadly than India could be the fact that households in China (which average 3.4 persons) are significantly smaller than those in India (which average 5.3 persons). (8)  With a higher portion of their members holding jobs in the cash economy, smaller households are likely to have more disposable income for mobile phones than larger ones.

In India, as in other developing countries, rural residents often regard mobile phones as valuable resources to be shared by family members and even by close friends, rather than purely personal devices. A study by LIRNEasia found that in approximately 80 percent of Indian households at the bottom of the pyramid in which one member owns a mobile phone, that phone is shared with other family members; in nearly half of these households, the phone sometimes is shared with non-family members, usually at no cost to the user.

In Bangladesh, the Village Phone Program (VPP) pioneered an innovative technology-sharing strategy to bring mobile phones to remote, rural villages that previously lacked phone service. The program is sponsored by Grameenphone (associated with the Grameen Bank), which is the largest mobile phone operator in Bangladesh. VPP provided loans to poor village residents (mostly women) to purchase a mobile phone and then trained them in mobile phone use. The phone was then made available to other village residents, who pay a per-minute charge to use it. Since the VPP started in 1997, it has attracted more than 260,000 participants in some 50,000 villages throughout Bangladesh. According to Kamal Quadir, CEO of CellBazaar in Bangladesh, the mobile phones used by VPP participants historically have generated the highest average revenue per user (ARPU) of all Grameenphone customers. Although VPP phones made up just 2 percent of the company’s subscribers, they generated 17 percent of its revenue. These figures demonstrate that each VPP phone served the communications needs of many people. (This successful program has been replicated in several other countries, including Uganda and Rwanda, although it may be reaching the end of its useful life.) (9)

Col. R. S. Perhar (Ret), chief operating officer (COO) of Tulip IT Services Ltd., explained that adoption of mobile phones in developing countries typically starts in urban areas; then it moves to larger villages, where mobile phones are first acquired by members of “trading communities” who need to do business with suppliers or customers who are based in cities and are already using phones; then mobile phone use spreads to the broader rural population. Adoption of mobile phones typically follows this flow of people and business transactions.

A 2007 survey of residents of five Asian countries—India, Pakistan, Sri Lanka, the Philippines, and Thailand—conducted by LIRNEasia provides additional perspective on “teleuse at the bottom of the pyramid” in those countries. (10) According to LIRNEasia executive director Rohan Samarajiva, the survey found that only a minority of residents—particularly those in the least affluent segments—had a mobile phone, but a large majority of people at all economic levels had access to a telephone and had used it. As Table 1 indicates, in all of the countries surveyed, more than 90 percent of respondents indicated that they “had used a phone sometime in the preceding three months” (in India, the percentage was 94 percent). This finding contradicts the frequently quoted claim that “half the world’s population has never made a phone call,” which Samarajiva characterized as an outdated claim that seems to have been “frozen in time.” 

Table I: Cell Phone Use in Asia

 

South Asia

Southeast Asia

 

Pakistan

India

Sri Lanka

Philippines

Thailand

Percentage of respondents who have used a phone in the past 3 months

98

94

92

93

95

Source: Ayesha Zainudeen, Nirmali Sivapragasam, Harsha de Silva, Tahani Iqbal, and Dimuthu Ratnadiwakara, “Teleuse at  the Bottom of the Pyramid: Findings from a Five-Country Study” (Sri Lanka: LIRNEasia, November 2007).

Kas Kalba also pointed out that “[adoption] patterns can change” and that early usage patterns of new technologies are not necessarily good predictors of future use. (11)  Since 2005, for example, India—which initially lagged behind China—has experienced “a surge in new mobile subscribers and is now adding them in larger numbers [each month] than China.” In fact, as TRAI Chairman Misra pointed out, India has become the “world’s fastest growing cellular phone market.”

What has changed? An important factor in the acceleration of mobile adoption in India has been the introduction of prepaid accounts, which allow users—often with very modest incomes—to pay relatively small amounts (in some cases, as little as US$0.20) in advance to keep their mobile service active. Today, in fact, more than 90 percent of Indian mobile subscribers have prepaid plans.

ARPU for India as a whole is now below INR 240 (US$ 6.00) per month—one of the lowest rates in the world. (In countries such as Japan and the United States, ARPU typically is in the range of US$50 per month.) The rapid growth in mobile subscribers in India has been accompanied by a steady decline in ARPU for these customers—a trend that is likely to continue as future growth is increasingly propelled by the extension of mobile service to the country’s poor, rural residents.

Several other factors have helped expand mobile usage by reducing costs. India has implemented a policy of “calling party pays” (CPP), which means that all incoming calls to mobile phones are free to the person receiving the call. CPP helps lower the costs of mobile phone ownership for users who make few outgoing calls. Whereas affluent urban users in India—as in other countries—have quickly gotten used to making frequent mobile calls and sending multiple text messages on a daily basis, the use of mobile phones among poorer rural residents is still restricted to business-related and emergency calls.

Another factor that is stimulating growth is the availability of “ultra low-cost handsets” (ULCHs) that reduce the barrier to mobile phone ownership. According to Sukanta Dey, president of emerging business for Tata Teleservices Ltd., more than a quarter of all handsets sold in India are second-hand. At the same time, manufacturers who are focused on emerging markets have been working on developing less expensive (< INR 1000) handsets. In 2007, for example, Reliance Telecom introduced a line of low-cost handsets that included a phone with a monochrome screen priced at INR 777 (US$19.20) and a handset with a color screen at INR 999 (US$24.70). Reliance reportedly sold 1 million of these inexpensive phones within a month of their introduction.

The impact of lower costs is being felt beyond India. Kamal Quadir of CellBazaar pointed out that Grameen’s Village Phone Program, which has been highly successful in expanding the use of mobile phones in rural Bangladesh, is “now dying.” The cost of a mobile phone has decreased so much that even poor villagers can buy their own phones and no longer need to use a shared phone. The VPP has played a valuable role in exposing many rural residents to the benefits of access to a telephone, which has undoubtedly helped to accelerate the adoption of mobile phones in Bangladesh, but its usefulness may be nearing its end.

Several Roundtable participants pointed out that low ARPUs and low handset costs do not necessarily mean low profitability for telecommunications companies. According to LIRNEasia’s Rohan Samarajiva, ARPU for Hutchison Telecommunications Lanka, a pure “bottom of the pyramid” mobile operator in Sri Lanka, is approximately US$3.00 per month, but its profits (before interest, taxes, depreciation, and amortization, or EBITDA) are approximately 50 percent of revenue. (12)  India’s largest mobile operator, Bharti Airtel, which has approximately 24 percent of India’s subscribers, earned profits of INR 40.6 billion in 2007 on revenues of INR 184.2 billion—double its 2006 profits of INR 20.3 billion on revenues of INR 116.6 billion. (13)

Nonetheless, if India’s mobile phone industry is to continue to grow, it will do so by reaching even more marginal users, which will certainly mean further reductions in ARPU. It remains to be seen whether higher volumes, lower costs, or other efficiencies will continue to mitigate the strain on profits resulting from decreasing ARPUs. 

Figure 1: Mobile Operators in India

There are approximately one dozen mobile phone network operators in India. The top four national carriers—Airtel, Reliance, Vodafone, and Bharat Sanchar Nigam Limited (BSNL is the incumbent government-owned carrier)—account for approximately three-fourths of all subscribers, and the six largest carriers account for more than 90 percent of subscribers. Other, smaller carriers operate in specific regions of the country.

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