MobileActive.org

This report was commissioned by the GSMA and undertaken by PricewaterhouseCoopers (PwC) to examine the link between regulation and the digital divide. The emphasis has been on Sub-Saharan Africa because of the region’s relatively low level of penetration and significant, unfulfilled demand. Mobile has clearly emerged as the main solution to providing communications for the world’s unconnected. Mobile has already brought significant benefits to economies and societies across much of the developing world, but much potential still exists in Africa, where fixed-line communication alternatives are extremely limited.

This report investigates how a move towards best-practice regulation would promote an increase in mobile investment and help to realise this potential. Specifically, the analysis explores the impact of regulatory policy and government intervention on the level of risk associated with operator investment decisions. In light of this, we examine how reduced regulatory risk could improve investment levels and reduce the cost of mobile ownership. We then consider the impact this could have on penetration levels, and the corresponding knock-on effect for GDP.

Mobile phones are revolutionising the lives of millions of people in East Africa and will continue to be the primary means for the great majority to access voice, data and Internet services. But mobile consumers in East Africa are taxed at some of the highest levels world-wide. In addition to VAT, an excise duty, or luxury tax, is levied on mobile services.

Recognizing that this tax hits the poor hardest, the GSM Association, the global trade association representing the interests of over 850 GSM mobile phone operators and over 180 manufacturers and suppliers worldwide, in collaboration with GSM Africa, commissioned Deloitte to analyze the effect that lowering excise duties would have on the industry and total government receipts.

The findings are very encouraging. By lowering the excise duty on mobile services, governments can expect higher level of tax and extend the essential mobile franchise to poorer sections of society. Today mobile phones are a basic need and not a luxury. All stakeholders will benefit if mobile services are taxed accordingly. As the governments in East Africa go into their budgeting rounds, we call for an urgent review of mobile taxation policies. Restructuring mobile taxes can be a win win-win solution for government, business and consumers.

This paper puts forward explanations and backgrounds to the remarkable difference in user uptake of the m-banking service M-PESA in Tanzania compared to the same service in Kenya. Data gathered from user and industry interviews, conducted during a field study in Tanzania between March-May 2009 is together with literature from Kenya used to compare the m-banking environment in the two countries.

M-PESA is provided by mobile network operators (MNOs), Safaricom in Kenya and Vodacom in Tanzania. Both are the leading MNO in their respective country although Vodacom has a substantially lower market share and turnover compared to Safaricom. This simple fact resonates in many areas affecting M-PESA, such as: size of marketing budget, M-PESA's priority within the organization and the company's ability to quickly sign up agents and attract initial customers. Differences in the general economic situation, the geography and political history are also put forward. Kenya has a stronger economy, a higher GDP and a more developed banking system. This has contributed to the financial literacy in the country which is an important factor when communicating a service like M-PESA.

Among the differences between the two implementations, we suggest that the three most influential factors to the user uptake have been the two companies ability to transform their airtime distribution into an agent network, the marketing strategy which needed to be adopted to the specific settings in each country, and the geographical and demographic conditions.

The premise of this paper is that the explosive growth of mobile communications can be a powerful tool for addressing some of the most critical challenges of the 21st century, such as promoting vibrant democracies, fostering inclusive economic growth, and reducing the huge inequities in life expectancy between rich and poor nations.

The benefits of mobile communications are particularly profound for developing countries, many of which are “leapfrogging” the traditional fixed telecommunications infrastructure. As a result, billions of people in developing countries are gaining access to modern communications of any sort for the first time. There is no doubt that mobile communications are having a significant impact on the way Americans live, work and communicate with each other.

But the impact is no doubt more keenly felt by the African mother who can call ahead to determine whether a doctor is available to treat her sick child before traveling for hours. Obviously, mobile communications are not a panacea for the daunting challenges faced by the 2.7 billion people who live on less than $2 a day. Like any new technology, it has costs and risks as well as benefits, and some of the promised benefits will undoubtedly fail to materialize. It’s worth remembering that 19th century pundits thought the telegraph would inevitably lead to world peace, or that in 1922 Thomas Edison predicted the motion picture would “revolutionize our educational system … and supplant largely, if not entirely, the use of textbooks.”

But Columbia University’s Jeffrey Sachs may well be right when he concludes that “the cell phone is the single most transformative technology for development. With a few exceptions, the U.S. government is largely oblivious to the ways in which the rapid diffusion of mobile services (and other new technologies) could be used to improve the human condition. I believe that the next Administration should launch a major new initiative to harness the confluence of new technologies and innovative business models as a key component of its global development agenda. This initiative would be designed to serve as a catalyst for policy reforms in developing countries, promote an increased capacity for innovation by developing country entrepreneurs to meet local needs, and stimulate additional investments by philanthropists, foundations and companies. Such an initiative could reduce poverty, strengthen democratic institutions, and improve global health outcomes. It could also help restore some of the damage to America’s international reputation, boost America’s “soft power,” and position American businesses and workers to benefit from the growth of emerging markets in Africa, Asia, and Latin America.

This initiative would not be limited to mobile services, and might also include decentralized approaches to providing safe drinking water, new vaccines, therapies, point-of-care diagnostics, clean energy, and improved crops that are more productive, nutritious, and drought-resistant. Obviously, private sector investment in mobile communications for developing country markets will continue to grow. Even in the absence of enlightened U.S. government leadership, mobile services will become more ubiquitous, affordable, and versatile.  But the missed opportunity will be the failure to leverage this large and growing private sector investment for public purposes, such as ensuring fair elections, helping a community health worker save the life of a mother or young child, or giving a farmer or small business owner access to the credit they need to build a path out of poverty.

In 2005, the GSM Association (GSMA) developed its first study on tax and the digital divide, seeking to understand more fully the tax rates affecting telecommunications in developing countries and the impact that cutting taxes may have on mobile handsets and new services. The study’s key findings showed that telecommunication taxes were disproportionately high in many developing countries and that even small cuts in taxes many attract significantly more mobile users. In this second report, the analysis is extended to include a larger set of countries – in particular adding transitional Eastern European countries. The report also investigates more fully the link between lower taxes and revenue opportunities for governments in the long term, showing that cutting taxes may lead to increased economic growth in the least developed countries.

This paper empirically considers the importance of various influencing factors in mobile phone adoption discussed in theory.  Using data from a large sample survey among the bottom of the pyramid in Bangladesh, Pakistan, India, Sri Lanka, Philippines and Thailand, the paper finds compelling evidence for significant social influence in the purchase of mobile phones by this population.

This influence is assessed both from a 'social pressure' angle as well as a 'social benefit' angle to recognize the importance of adoption behavior of one's close network and the perceptions of benefits in one's own adoption.  Evidence is also found to confirm the importance of perceived economic benefits in mobile adoption among this group even though such benefits are found to be closely tied with social benefits.

The growing importance of mobile telephony for users at the bottom of the pyramid is reflected in the high proportion of their incomes devoted to this service. Evidence from communities in the developing world, where low-income users have developed strategies to minimize costs while continuing to benefit from access to communication, has opened new lines of research. Based on a survey of 1,000 mobile telephony users carried out in 2007, the present study assesses the strategies practiced by mobile users in two metropolitan areas of Mexico.

The results show that the main short-term strategies to minimize the costs of mobile telephony are 1) using the phone only to receive calls, and 2) the use of SMS. In both cases, the main determinant of whether users at the bottom of the pyramid use cost-reduction strategies is their low economic status.

There are more than 4 billion mobile connections worldwide. Over the coming years, many more millions of people at the “base of the economic pyramid” are expected to acquire mobile phones, greatly benefiting their lives, business activities and access to information. However, most of these new subscribers will not have direct access to electricity. This makes it more challenging and expensive for them to charge their mobile phone, not to mention to power the myriad of other daily functions for which electricity is important such as lighting, cooking and refrigeration.

The GSMA Development Fund believes that the issue of electrification is extremely relevant to mobile operators. The innovative nature of base of the pyramid markets has spawned creative solutions to the charging problem - primarily via entrepreneurs who provide electricity on a per-charge basis, powered either by their own access to the grid or through the use of portable car batteries.  It seems likely that renewable energy devices, such as photovoltaic chargers, will provide a practical and environmentally friendly fix. 

As part of its Green Power for Mobile programme, the Development Fund has conducted research into off- grid charging solutions for mobile phones. This study was conducted over a three month period (June-August, 2009) and included extensive research to identify emerging vendors, their products, and other players in the field. The process also included dozens of interviews and surveys of mobile operators and vendors covering 50 countries across Africa, Asia and Latin America.

The research has found that there is significant interest in off-grid charging solutions from mobile operators - over half those interviewed have already introduced, or are considering introducing off-grid charging solutions in the near term. At the same time, there is only limited understanding about the full scope of options and the associated social and business benefits.

This publication is intended to provide initial market information and a framework for decision-making about off-grid charging solutions. More practically, it lays out a series of key questions that the GSMA refers to as “Charging Choices” - to help companies think through the possibilities for off-grid charging. The paper is not a fully exhaustive review of all the existing players or initiatives in the market, and the Development Fund is not endorsing the products or companies reviewed herein. This publication is, however, a start of what the GSMA believes will be an important and exciting area of industry growth in the coming years.

This paper presents the results from a quantitative impact study of the Grameen/MTN Village Phone in Rwanda, which was conducted between June 2006 and August 2007. We find that the introduction of a Village Phone had a substantial impact on reported access to telecommunications for local entrepreneurs.

While the introduction of phones did not follow the intended randomized design, we compare the changes observed in 94 study communities that received the phones to the 284 that did not. We find that the placement of a Village Phone in a community was associated with both an increased use of phones to transmit news and a greater propensity for farmers to arrange their own transit.

Despite this improvement in access to telephony, the actual prices received by farmers were not affected. Impacts at the household level were muted by the relatively small size of Village Phone businesses and airtime usage rates, implying that profits must be transferred from other sources to pay off the phone in six months. Reported labor time in household enterprise increased dramatically for Village Phone operators, but positive impacts on consumption or overall business profits were not found.

The number of mobile subscribers globally is estimated to have reached four billion in 2008 (ITU, 2008), with mobile penetration reaching 61%. Around 58% of subscribers are in developing countries, and subscriber growth in Africa – more than 50% per year – is the highest in the world. Studies have shown that this rapid increase in mobile penetration has contributed significantly to economic growth. Fuss, Meschi and Waverman (2005) looked at 92 countries, both developed and developing, to estimate the impact of mobile phones on economic growth for the period 1980 to 2003. They found that a 10% difference in mobile penetration levels over the entire sample period implies a 0.6% difference in growth rates between otherwise identical developing nations. The effect of mobiles was twice as large in developing countries as in developed ones (Waverman, 2005).

Mobile phones have brought three kinds of benefits (id21, 2007). First, incremental benefits, improving what people already do – offering them faster and cheaper communication, often substituting for costly and risky journeys. Fishermen in India, for example, can earn more money and waste less fish by phoning coastal markets to see which market has a shortage of supply. Second, transformational benefits that offer something new. Innovative applications, such as m-banking and m-commerce, are bringing banking services to millions for the first time, and enabling people to use mobile phones to pay for goods and services. Third, production benefits that result from the creation of new livelihoods, not only through professional telecommunications jobs but also through activities like re-selling air-time or phone cards. Since the liberalisation of Nigeria’s telecommunications sector in 2000, the industry has become a key source of new jobs in the economy, employing about 5,500 professionals, and responsible, indirectly, for another 450,000 jobs.

In emerging economies, access to accurate market information can be limited by poor, underdeveloped or even absent infrastructure. Countries are poor, partly because markets do not work well and markets do not work well, partly because of information problems. Isolated and poorly informed, farmers, traders and businesses simply cannot participate in commercial exchanges, and even when they do, tend to have limited bargaining power. Telecommunication can serve to ease such limitations (Jensen, 2007).

Infrastructural bottlenecks can also constrain physical access to markets; even if a farmer has access to current market prices. If he cannot get his produce to the right market before it perishes, that market information is useless. In Bangladesh, problems such as flooding, frequent electricity outages as well as urban congestion (CKS Consulting, 2009) only serve to compound such problems. This is not just so for agricultural markets, but even the market for second hand goods, services, and much more.

Electronic commerce (e-commerce), or the conduct of commercial transactions over electronic networks (OECD, 2002) has been seen as a way of reducing friction in the marketplace; this allows larger volumes of transactions to take place, effectively expanding markets, but also opening up entirely new markets (Mann, Eckert and Knight, 2000; Steinfield and Klein, 1999), allowing marketers (large and small) to exploit the Long Tail (Anderson, 2006).

In developed economies, e-commerce has taken the form of commercial transactions being facilitated over the Internet, but recently has been extended to mobile networks as well, owing to their growing ubiquity. In emerging economies poor Internet penetration and the lack of secure payment mechanisms, inter alia, have slowed the growth of e-commerce.  Meso, Musa and Mbarika (2005) note that there is little empirical evidence of success of mobile commerce in the developing world; most evidence is anecdotal. However, as this paper will show, e-commerce is in fact taking place over these networks, even if not in the same form as in developed economies.

The paper gives an overview of the players in mobile payment schemes and their respective roles in advancing mobile payment and banking in developing countries.

Just 20 years after the launch of the world’s first commercial mobile services, there were more mobile than fixed-line users globally, and nearly as many people had a mobile as a television. Vodafone’s Socio-Economic Impact of Mobile (SIM) programme started from the beginning of 2004 to commission research which would help extend the evidence and develop a better understanding of the effects of this extraordinary phenomenon. Mobile communications are experiencing faster growth rates in low-income countries – more than twice as fast as in the high income countries in recent years. Low- and middle-income countries are therefore accounting for a rising share – now more than 20 per cent – of the world mobile market. But there is great variety between countries in mobile phone penetration and use.

Surprisingly, given its extensive poverty, Africa has been the fastest-growing mobile market in the world during the past five years. The first cellular call in Africa was made in Zaire in 1987 (the operator was Telecel). Now there are more than 52 million mobile users in the continent (compared to about 25 million fixed lines).In 19 African countries, mobiles account for at least three quarters of all telephones. Africa as a whole lags far behind richer regions of the world. Nevertheless, the rapid spread of mobile in so many of its countries is a remarkable phenomenon, especially in the context of their huge economic and social challenges.

This report describes and summarises the initial research projects commissioned by Vodafone and carried out in the second half of 2004.The results described here confirm the vital social and economic role already played by mobile telephony in Africa less than a decade after its introduction there. The research documents its impact both at the macro-economic level and at the level of particular communities and businesses. It contributes to the evidence base for the development of both regulatory policies and business strategies in Africa. This opening section sets the context with an overview of the data and of the earlier academic literature on mobile, and information and communication technologies more generally, in developing countries.

Mobile phones have grown at an extraordinary rate throughout the developing world in recent years. They are potentially an invaluable economic asset to the poor and an important tool for strengthening social ties. Mobile phones may also help women overcome physical boundaries, especially in places where they are separated from their support networks and bound within their husband’s social sphere.

This paper examines the impact of mobile phones on the status of women in India. Using nation-wide cross-sectional data at the individual level, the author builds on Jensen and Oster’s model for measuring women’s status. The author uses domestic violence, decision-making autonomy, child preferences and economic independence as proxies for bargaining power and status of women in their household and society.

Mobile phones significantly decrease both men and women’s tolerance for domestic violence, increase women’s autonomy in mobility and economic independence, but do not have significant effects on child preferences and other measures of autonomy. Where the effects are significant, they are also large and in some cases equivalent to more than five years of education. These results suggest that the Government of India and those of other countries should consider mobile phones as a policy instrument for empowering women.

The SME sector has an important role to play in the present and future economic development, poverty reduction and employment creation in developing economies (Hallberg, 2000). Stern (2002) stresses that the SME sector is the sector in which most of the world's poor people work. SME sector growth largely exceeds the average economic growth of national economies in many countries and contributes significantly to employment creation. Accordingly, governments and donors alike have recognised the important role of the SME sector for overall development. As a result, many government policies are geared towards supporting their growth through a variety of programmes that range from tax incentives to technical assistance; from regulatory provisions to policy interventions; training and other types of business development services (O'Shea & Stevens, 1998).

Arising from this, one of the key issues is to identify the current information practices and needs, as well as the obstacles that SMEs face in their daily business activities, and to provide guidance in creating relevant policy initiatives that will lead to more economic growth and employment. The SME e-Access and Usage survey was carried out by the Research ICT Africa! (RIA!) network in 14 African countries between the last quarter of 2005 and the first quarter of 2006. Its primary objective is to understand the impact of ICTs on private sector development, and how ICTs can contribute to a vibrant SME sector and economic growth in the context of developing economies.

The countries covered included Botswana, Cameroon, Ethiopia, Ghana, Kenya, Mozambique, Namibia, Nigeria, Rwanda, South Africa, Tanzania, Uganda, Zambia and Zimbabwe. To this end, the SME e-Access and Usage survey was motivated by the lack of clarity about the impact of ICTs on small businesses. The literature to date has failed to create a tight link between the use of ICTs and issues such as profitability and labour productivity. There are so many competing claims against government resources and time that a vague link between ICTs and economic growth and employment creation is not convincing enough evidence for governments to commit their resources. This survey aims to change that perception by providing solid empirical evidence of the link between ICTs and business performance based on firm-level evidence.

A major contribution of this survey to the existing understanding of SMEs in Africa is its use of a formality index to categorise SMEs. Past studies have treated formal, semi-formal and informal businesses uniformly, reducing the applicability of their analysis. A formal business is fundamentally different from an informal business in Africa. A formal business pays its taxes, is more likely to export and often is included in official census of SMEs. In contrast, the primary survival strategy of an informal business is to remain below the radar screen, not to pay taxes and not to form part of any official data. Apart from the obvious survey difficulties this presents, there is a more mundane business difference: informal businesses are also more likely to sell or produce anything that might make money, in contrast to more formal businesses that have a tendency to concentrate on a single product or set of products. The implication of this is that a Cobb-Douglas production function, for example, cannot be used to analyse SMEs, unless there is a declared interest only in formal SMEs.

Of course, suveying only formal businesses would be telling half the story since about two-third of non-resource-driven GDP generation is derived from SMEs, and a large share of that from informal ones. The establishment of the link between ICTs and profitability and labour productivity creates another set of policy imperatives for governments across the continent. ICTs are only useful if they can easily be acquired and used. The key obstacle identified by SMEs towards greater possession and use of ICTs is their cost. The high cost of ICTs in Africa has been attributed to policy choices that have limited competition, and the absence of regulatory capacity to regulate abuse of market dominance in wholesale and retail pricing (Gillwald, 2005 and Gillwald & Esselaar, 2004). This requires greater regulatory capacity, something that is missing from nearly all countries included in the survey. To illustrate this, most governments are exclusively focused on the direct contribution of ICTs towards the economy in terms of profits and staff complements of major telecommunications operators.

However, as this report makes clear, it is the indirect contribution of ICTs towards economic growth that is truly transformative: “ICTs have the largest beneficial impact in conjunction with other changes, including a new set of ICT skills/training, structural changes within business models and the economy, and institutional and regulatory adjustments” (ITU, 2006: 39). This means that ICTs have to be looked at from a perspective that considers all causes of economic growth and attempts to provide a catalytic environment that uses ICTs to generate economic growth rather than the ICT sector's specific contribution towards GDP.

This paper is part of a series that contributes to evidence-based Information Communication Technology (ICT) policy formulation and regulation on the continent by providing decision makers with the information and analysis necessary to assess the regulatory impact and policy outcomes of telecommunications reform against actual sector performance.

It reports on the findings of the second household and individual user survey of access and usage conducted by RIA between 2007 and 2008 across 17 African countries. It builds on the first household survey conducted by RIA in 2004/5 and a number of subsequent supply-side studies that have demonstrated that across the continent, even where there has been overall sector growth, sector performance has been sub-optimal.

For the most part, the primary national policy objectives of delivering affordable access to telecommunications have not been met. What the studies confirm is that mobile telephony is addressing the gap between those who have voice services and those who do not.

However, the divide between those able to access the Internet and the range of enhanced services that have become necessary for effective citizenry and consumer participation, and those not able, has widened. This is not only as a result of limited access but also due to the high cost of communications that not only inhibits access but also constrains individual communication and inflates the input cost to business. This demand-side survey provides insight into the continued marginalisation of large numbers of Africans, even from basic communications services, and confirms the sub-optimal use of communications services due to the high cost of access to services. 

The value attached to accessing and utilising communications is evident in the considerable portion of household income spent on communications and the multiple strategies used by individuals to maintain communication access according to their cash flow and the prices of alternatives. The willingness-to-pay model arising from the survey suggests that relatively small reductions in the cost of equipment and services would result in increased uptake and usage, with a significant growth in revenue for operators.

There is also evidence of considerable pent-up demand in countries such as Côte d’Ivoire, for example, where the amount that those without mobile services would be willing to pay for a handset is roughly the same price as the real cost of a handset.

What these findings indicate is that sector reforms have generally been sub-optimal. The introduction of limited competition particularly in mobile services has indisputably improved access particularly to voice services but insufficient competition or effective price regulation has constrained take-up and usage amongst those who have access to communication services and resulted in high prices.