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Serving Sri Lanka

This web log is a news and views blog. The primary aim is to provide an avenue for the expression and collection of ideas on sustainable, fair, and just, grassroot level development. Some of the topics that the blog will specifically address are: poverty reduction, rural development, educational issues, social empowerment, post-Tsunami relief and reconstruction, livelihood development, environmental conservation and bio-diversity. 

Saturday, March 04, 2006

Telecom Demand: Measures for Improving Affordability

World Dialogue on Regulation: Monday, 06 February 2006 Written by Claire Milne et al
Led by Professor Robin Mansell at the Media and Communications Department of the London School of Economics and Political Science (LSE), and Claire Milne, Visiting Researcher at LSE, this project has focused on developing a better understanding of affordability as key to understanding telecom demand which, in turn, is central to sound business cases for investment and the achievement of network development in developing countries. The main report and three companion papers are now available. This project has been undertaken for LIRNE.Net and the World Dialogue on Regulation and funded by IDRC, Canada.
The series of papers includes the main report by Claire Milne, a paper by Sebastian Ureta on variations in expenditure on communications, a case study by Sangeeth Varghese of Reliance Infocomm, and a paper by Jeffery Wheatley on price elasticity of demand.
All the reports can be downloaded from this page. You can comment on the papers in the forum at the bottom of this page,
Below is the Executive Summary of the main report, Telecoms demand: measures for improving affordability in developing countries - A toolkit for action
Executive summary
This report is addressed to a wide range of people in and around the telecoms industry. It may prove useful in various ways. For example:
Investors may note the wide variation in potential demand found in our review of survey research, and seek business cases which are firmly based in sound research and with forward-looking marketing strategies.
Readers from the telecoms industry may find some new ideas and challenges in the collection of innovative marketing approaches.
Regulators in developing countries will find a proposed approach to promoting affordable telecoms, together with examples of what other regulators are doing.
Consumer groups and public interest advocates can apply the findings to their own situations, and approach their local industry representatives and regulator in support of best possible local developments.
We start from the idea of universal service and universal access, which is widely seen as having three essential components: availability, accessibility and affordability.
Our focus is affordability. We believe that within any given scenario of overall income and price levels, marketing factors can play a significant role in improving affordability. Furthermore, they are relatively easy to deploy, sometimes even leading to a ‘win-win-win’ situation (where industry gets more profits, consumers get more service and the regulator gets more praise). This report therefore aims to highlight and spread awareness of such tools for improving affordability. It goes without saying that their use should not detract from other relevant efforts, in particular to intensify competition, to introduce lower cost technology and to bring control of undertakings closer to consumers and communities.
Over the last decade, the rapid growth of cellular service has brought phone service for the first time within physical reach of huge populations. And advances in technology, especially but not only GSM, have both brought down costs and provided practical means to target affordable telephony packages accurately at almost everyone within cellular coverage. Two key features of GSM underlie these conclusions – its cost structure, and its software-based service provision.
The report highlights tariff, service and marketing innovations which can make some use of telephony affordable even to people with very low budgets. Micro-prepay is seen as especially significant. For most operators, it is technically and financially easy to deploy – arguments against it are mainly of a commercial nature. It is suggested that regulators in countries where micro-prepay does not soon appear will need to be satisfied on the reasons for this.
The phenomenal spread of mobiles has given rise to a perception in some circles that affordability is no longer an issue. The report shows that for large populations this is too simple a reading of the available evidence. A growing number of studies reveals high priceelasticity of demand for telephone service in developing countries, which suggests that some operators may be rewarded by more adventurous pricing than is current. While the focus of the report is not on further extension of coverage, the evidence would support arguments for wider telephony coverage of developing countries.
The report reviews recent user research and household expenditure surveys to improve understanding of user perceptions of affordability and percentages of income actually spent on communications. It also presents a new analysis of communications spending based on household expenditure surveys in four developing countries. It concludes that all countries, when setting targets and strategies for achieving universal service and access, should take account of their own population’s spending patterns. Apparently common patterns are shown which could warrant further research. There is particular uncertainty over the spending patterns of low income groups.
Our study strongly suggests that the technology exists to enable mobile service to be provided profitably in rural areas of developing countries – which has to mean at prices which are affordable to many if not most rural residents. If existing operators cannot or choose not to offer low-priced service in rural areas, there is a clear case for offering these opportunities to other companies, including to local start-ups with NGO or community support whose primary objective might be service, rather than profit.
Where affordability goals are demonstrably not achievable on a commercial basis, various shared universal service funding schemes, often originally devised for speeding up network roll-out, may be adapted to balance any unfair net cost burden. In many cases, no such device should be needed. In an open market environment, technological advances and farsighted marketing strategy can do the job, with the regulator’s role being one of oversight rather than intervention. Of course, in many countries there is still a long way to go before markets are open enough; but efforts to improve affordability can usefully proceed in parallel with market opening.

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