Mobile Operators, Price Gouging, Innovation, and Txteagle -- A Critique by Steve Song

Posted by KatrinVerclas on Mar 23, 2009

Steve Song has done it again. A fellow at the Shuttleworth Foundation, he critiques Nathan Eagle's new txteagle venture to tap into the 'cognitive resources' of millions of mobile-phone users in developing countries.  Nathan recently gave a talk at eTech, presenting texteagle. Here is the video of Nathan's presentation.

In short, txteagle, in the words of the BBC, is "a new scheme that distributes simple tasks via text messages is being used to target a potential untapped work force in developing countries. Txteagle is making it possible for many people in countries like Kenya to earn small amounts of money by completing simple tasks like translations or transcriptions."

But Steve notes that Nathan, who is closely aligned with the mobile operators as part of txteagle's business model, misses the point about the competitive mobile marketplace.  Here is an extended excerpt of Steve's blog post that makes the point why mobile markets in Africa, in fact, are neither competitive, nor innovative. More importantly, as a result, the cost of mobile services in relation to income, is, in Steve's words, "a level of  price gouging on the part of mobile operators in developing countries that verges on the criminal.  They make the highest profit margin on the service the poor need most."

HOWEVER, one thing struck a real false chord in his talk.  He represents the mobile industry in Africa as an effective competitive marketplace.  I wish this were true.  He points out that the mobile market has tripled in size in the last three years in Kenya and he recounts an episode in which someone stuck a free SIM card in hand as he was getting into a taxi. He goes on to say that there is now an “all out war for market share in Kenya”.  There may be a war for market share, HOWEVER, it is a marketing war and not a price war.  While the network costs for mobile use may have declined marginally in the last few years, they are still nothing like competitive.

I am not quite sure why he misses this.  It may be the close relationship he is obliged to maintain with the mobile operators.  In his talk he points out that the Kenyan incumbent, Safaricom, will earn a billion USD in revenue this year.  Minutes later he highlights the fact that his initial attempts to establish SMS-based real time blood-bank monitoring in Mombasa failed because nurses were unwilling to pay the cost of an SMS to update the database. He says:

..if you’re working at a local hospital, a text message is a substantial fraction of your day’s wage..”

Now put those two facts together.  A billion dollars in revenue and an SMS is a substantial fraction of your day’s wage.  Hmmm.

Nathan had to resort to paying nurses the equivalent of three SMSes for every day they updated the blood-bank.  I love the ingenious way he found to make the system work but it does highlight what a throttle to innovation the high cost of communication is.

Recent research from ResearchICTAfrica reveals that Kenyans are spending incredible amounts on mobile communication as a proportion of income.  Here’s how it breaks down.  The average Kenyan spends over 50% of their disposable income on mobile communication. For the bottom 75% of the population, that figure goes up to 63.6%.  In terms of total individual income, the average Kenyan spends 16.7% of their income on mobile communication.  That figure rises to 26.6% when looking at the bottom 75% of the population.  These figures are astounding.  It highlights the fact that Africans are paying for mobile communication in spite of how expensive it is, not because of how affordable it is.

It also emphasises how critical access to mobile communication is for people. Nathan makes an important point when he says the fact that no one in Kenya can afford not to have a mobile phone.  Even if you are digging a ditch by the side of the road, day labour is now organised via SMS.  This means that mobile operators have Kenyans by the throat.

He gives another example about a water pump manufacturer in Kenya who, by combining an mobile-mPesa-enabled, solar-powered metering system with their water pumps, have completely changed their business model.  They are now able to give water pumps away for free (if I understand correctly) and then make a profit by selling access to water via Safaricom’s mPesa service.  Send the pump 20 Ksh and it pumps 20 litres of water for you.  This has increased the water pump companies business and made water more accessible to those who need it.  Nathan suggests that this benefits everyone.  He says:

“Michael Joseph (CEO of Safaricom) loves this because you have to have a Safaricom account to get water.”

Am I the only one who finds this a little disturbing?  When a single mobile operator is a gatekeeper to water supply, something is wrong.  For any village in this situation, Safaricom can charge whatever they like.

The failure of communication regulators in Africa to either license sufficient new market entrants or to curb the excesses of incumbents with significant market power has led to a situation where existing operators collude to maintain high profits.  The cost of SMSes is a great example of this.  If we accept the premise that, in places like Kenya, no one can afford not to have access to a phone, then one cannot help but feel that something needs to be done.  A flour milling company in South Africa was recently fined more than 45 million Rand by the Competition Commission for price fixing and collusion.  I think it is time to take a serious look at mobile operators.

Equally the fact that mobile operators are walled gardens (Why can’t I pay the water pump with my Zain phone?) means that innovators like Nathan are going to be comparatively far and few between.

Imagine an alternate reality where Africans paid less than 5% percent of their income on mobile communications and all phones operated on an IP-based network so that any new African innovation might be unlimited in terms of scope.  Then we would see mobile-enabled social and economic innovation taking off in Africa.

The unfortunate reality is that Nathan and TxtEagle need the goodwill of the mobile operators in the region to do business.  Imagine if you had to woo Internet Service Providers host your web application knowing that they could shut you down on a whim.   For me, the remarkable innovation that is TxtEagle only highlights how broken the mobile environment is for real innovation in developing countries.

Photo courtesy Nathan Eagle, txteagle.


txteagle is fake

I work for txteagle and my amount is due/unpaid... they are fake to my knowledge...

Reply from Steve Song, the author of the piece

@Dennis  As the author of the original article referenced above, I
want to make it abundantly clear that my critique was not of TxtEagle,
which I think is a brilliantly innovative company, but of the
environment in which innovative startups like TxtEagle are obliged to
operate. I did give Nathan a little stick for not acknowledging that
in his Etech talk but that is by the by.

For the record, at the time I wrote the article and as far as I know,
SMS was the primary communication channel for TxtEagle.  You may note
in their FAQ, they acknowledge that "txteagle’s origins began with
SMS" but now they support USSD and WAP.

USSD is great because it doesn't cost the user anything and it is more
responsive than SMS.  However, USSD itself has irritating limitations
such as timing out if the interface is inactive for more than 30
seconds and the fact that it is almost impossible to write a simple
user interface guide for USSD because of the idiosyncratic manner in
which phone manufacturers implement their phone interfaces.

Which brings me back to my point, that initiatives like TxtEagle have
succeeded in spite of their environment, not because of it.  It took
someone of Nathan's genius and drive to make this happen.  If there
was a true standards-based environment for phones and a market
competitive costs for mobile services, then we would many more cool
companies like TxtEagle.

Steve Song

Txteagle a life saver

Dear all,

           Iam sorry to say that you are all mistaken and would just request that you understand something before criticizing it for your information Txt Eagle uses USSD as opposed to traditional SMS USSD is a session based protocol unlike its siblings SMS and MMS where a session is allocated to each and every transaction also this is a free data channel on the operators network examples of USSD in action are when you get a service message from the operator notifying you of your new airtime balance (this message is displayed momentarily and not save on the phone), so when people are using the Txteagle service they do this work by sending ordinary SMS to the USSD gateway which then initiates are session for them thn the they can carry out the micro tasks they want to do..there is NO cost on the users part. Please understand something before critizing..this service is changing people lives...just buy a plane ticket leave your comfortable home and come down to kenya and see the changes for your selves as opposed to make wild and uninformed statements 

Safaricom, mobile web east Africa

Good points, Steve and Katrin,

in fact at a recent conference in Nairobi: Mobile web east Africa, #MWEA10 Safaricom came in for a lot of flack from the bloggers and developers in the audience who pointed out that not only was Safaricom having a monopoly position and charging high prices, they also have no API so that developers can innovate for their network. It was quite a heated discussion, the Safaricom representative promised that in a month they were going to reveal an 'open' approach to give space for the developers as Vodaphone have done in South Africa. we will see.

The mobile space is, as you point out, very much in the hands of the operators, for censorship, costs, access, which makes leveraging the potential of these networks for social, business or play much more complicated than leveraging the potential of web networks.





Challenge offers for sustainability

A key to having microsourcing in telework scale up in poor areas may be to target the initial offers on areas that show a readiness to take steps toward self-funding uplift -- including removal of regulatory barriers that keep cell phone costs so high.

Bundling microscholarships, online work-study opportunities, and telework "challenge offers" can help local liberalizers lever changes in the business climate, leading to awakenings of dormant land and human capital.

Visuals and precursors for the approach are here -- "Seeds of Change" diagram

Openworld has some catalytic microscholarship funds to help students get ready with work-study projects to build track records for entry into online freelance markets. We look forward to hearing ideas on next steps.

Mark Frazier
Openworld, Inc.
"Awakening assets for good"
@openworld (Twitter)

So what you're saying, is

So what you're saying, is that there is an untapped work force out there but the cost of tapping into it is more than the money saved by using it? So what the companies did in order to reduce their operational expenses, is to have the labor force pay for it? The business model works if you're franchising, but not in this case. This isn't franchising. The poor are convinced that if they put out their money, they'll earn it back and more? Terrible. --------- Olivia

Making mobile viable...

How can either people in the developing world or developed world help bring down prices on SMS messages so that these types of ventures are more viable?

So we can have a .01 SMS perhaps.

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