** Update ** Premium Information Services by Google and MTN in Uganda - and why is the cost so high?

Posted by KatrinVerclas on Jul 01, 2009

My post on Google's SMS services raised quite the storm in the waterglass. Erik Hersman took me to taks for, as he sees it, questioning that "if people who are claiming to help the poor should charge, and if so, should they make a profit."

However, this was not my point. My question was why, given the target audience as noted in the Google post and Grameen Foundation press release, for at least one of the services (SMS Tips) the cost per SMS comes at the highest premium price but is not advertised as such in the promotional literature and PR. Secondly, given that Google Labs in India makes a smilar SMS info service available at the regular cost of an SMS in India (which is exceedingly cheap), why does Google behave so differently in the African market, in essence colluding with the absorbitantly high costs of SMS there?

So I emailed Rachel Payne, Google’s lead in Uganda to clarify the costs that I only speculated about. Here is what she says, clarifying the pricing: 

Hi Katrin, Yes, I saw your blog post where you speak in detail about the pricing. However, what is written is not quite accurate. You see, Google, Grameen and MTN launched three types of mobile services yesterday: Google SMS Tips (targeting low-income, rural users primarily), Google SMS Search (urban, mainstream) and Google Trader (all users).

The second service is somewhat similar to other “premium SMS” content services currently available (except that it is built on Google search technology) and therefore, is the same price as other content services. To accommodate the first group, we have priced Google SMS Tips at half the price of a content service; this is available for the cost of a person-to-person SMS, which many rural individuals are willing and able to afford currently.

The third service drives income and livelihood benefits, so we decided to begin charging at the normal content service rate and monitor whether this excludes rural communities or not (we did extensive testing during the pilot, which included pricing discussions and most of the users found that Google Trader provided far greater, direct value than the 110 shilling price difference). For all services, we are offering them for free for the first few months, just to ensure that all users have an equal opportunity to try them out, risk-free and allow them to access critical content during this period so that they can assess whether or not they would like to continue to use the service.

So, bottom line: Google SMS Tips (targeting low-income, rural users primarily) = 110shs per sms, Google SMS Search (urban, mainstream) = 220 shs per sms, and Google Trader (all users) = 220shs with a free period currently (how long is unclear).

A few interesting comments were made that sum up some of the issues I have with the service: 

The problem from my perspective is terminology & intent. [i.e. truth in advertising - if it's a service for "the poor' with input from NGOs and advertising vital health services, for example, why then charge the very highest rate available in country?]

Premium SMS should not be for messages that targets the poor; it should be left to entertainment, gambling, and other consumption related uses.  [which the carriers in the United Statesl, for example, recognized, and waived charges for premium SMS fundraising for nonprofit organizations]

Melissa Loudon who writes for MobileActive on occasion, and works at the University of Capetown, makes two additional important points:

In South Africa, we’ve seen two big problems with SMS as platform for information services. Steve Song’s walled gardens (why can’t I pay the water pump with my Zain phone?),. gets the first one perfectly. If you’re looking at government services for example, you really need a democratic system, you can’t exclude users on specific networks.

The other problem is the seeming impossibility of toll-free (billed back to the campaign rather than to the user) SMS, except as a special favour from a specifc operator. A lot of the time, people don’t have airtime – can we really exclude them? If the services we are providing are as vital as we say they are, the answer is no.

Steve Song, with whom I have had lots of discussions about the cost of SMS in Africa, makes the key point in a provocative post that is part of a series:

For me the problem is not whether the poor should pay for services.  I don’t think anyone engaged in this discussion believe the poor shouldn’t pay for services that are of value to them. It is not even whether they should pay a premium rate for services. [I do question that! - Katrin]  The problem for me is the base rate itself of SMS charges.  Google and Grameen have correctly identified the tremendous potential power of SMS as a technology that can effectively provide data services to the poor.  However, this transformative technology, whose  marginal cost of deployment is effectively zero, is being throttled by mobile operators charging a disproportionately high price for the service.  Mobile operators in Africa still embrace the economics of scarcity.

In his post, Erik makes a provocative statement.  He says,

"If there’s a problem with collusion and price fixing in an industry (like there sometimes seems to be with SMS services in a country), that’s something beyond the scope of individuals and needs to be tackled separately by regulation."

If only it were that simple.  Telecoms regulation in Africa is in a parlous state.  With few exceptions (Nigeria being a notable one) communications regulators in Africa are under-resourced and often insufficiently independent from governments who maintain a substantial investment stake in the incumbent fixed-line and mobile operators.

So what happens in practice?  Regulators often start out well.  They issue a call for public input on issue X,  be it interconnection, local-loop unbundling, carrier pre-select, spectrum licensing or what have you.  Who responds to these calls for input?  Right now in most African countries the only organisations effectively lobbying the regulator are fixed-line incumbents and mobile operators…. with PREDICTABLE RESULTS.  The old joke about a telecom company being a law firm with an antenna stuck on top is actually not that funny in Africa. Incumbent operators are experts at both influencing policy and regulation development and at stalling any efforts to reform unfair practices.

For the rest of us, lawyers are notoriously expensive and there are few civil society organisations with the resources to actually draft the kind of input that regulators need in order for there to be a balanced debate.  There is a desperate need for organisations like Google who have a vested interest in seeing more data traffic to help lobby for more competition, for lower barriers to entrepreneurship in the telecom sector, and for cheaper access for all.

Put this argument together with Melissa's point, and mix in India's SMS Channels, run by Google, and you wonder whether Google is doing the right thing in Uganda. 

Lastly, a noteworthy point:  Orange, a newcomer to the Ugandan market, has been consistently offering much lower SMS rates, the cheapest in the country. However, due to the high interconnect rates of the duopoly MTN and Zain, Orange has had a hard time entering the market.  This is starting to smell like price collusion and artificially keeping lower-priced competition out - a market that actually is beneficial to communications and information services for poorer people. 

As Steve Song notes:

Imagine the innovation in services that might be unleashed if SMSes were priced so that Africans didn’t have to think twice about sending them.  Imagine the economics of abundance being applied to the telecoms sector in Africa.  Sadly, voices calling for this on the continent are not nearly loud enough.  Google, which represents that principle so well, disappoints by failing to stand up for it.

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