Africa’s Poor: Premium SMS in the Crossfire

If you provide services to poor people, should you make a profit?

That’s essentially the question raised by Katrin Verclas on MobileActive, and it’s an excellent one. Specifically, Katrin calls out the new Google Trader service offered by Google in Uganda, in conjunction with the release yesterday of their SMS products with Grameen and MTN Uganda, one of the local mobile phone operators. Basically, they charge 220 Ugandan Shillings per use, instead of the median 110 UGS charge across most networks. This is called a premium SMS rate.

Google Trader price in Uganda

Premium SMS rates are charged so that third-party service providers can make money off of services that they provide over the mobile phone network. The operator makes their (ridiculously high) profit as normal, and the overage is for the third-party. You’ll find a lot of dating, event and sports services offered in this way all over the world, not least across Africa.

Back to the question

The question posed is if people who are claiming to help the poor should charge, and if so, should they make a profit?

I think we’ve seen from the Grameen model in Bangladesh (ex: Grameen Bank and Grameen Phone’s Village Phone program) that you can (and possibly should). By doing so you help both parties; first, by providing a service that consumers value and are willing to pay for, and second by making the business of running an operation self-sustaining. Many good business, or project, ideas die due to lack of sustainable cash flow.

For instance, if a 220 shilling SMS can save you the 1500 shilling visit to the doctor or veterinarian, or give you a 10% higher return for your crops, is it worth it?

Is there a problem in the question?

There ends up being a paternalist nuance to that original question. After all, is it up to us to decide what services to offer the poor and at what price? Aren’t poor people able to make the value-based decision on whether a trip to the doctor is more useful to them than a call or an SMS to one? If services are being offered, the person making the decision to call, SMS or go physically to solve their problem, or not, is ultimately the arbiter of whether or not a service has merit and should be offered. It’s a classic market-led approach – if the price is too high for the service, equilibrium will not be reached and one will give, usually price.

This is particularly true when talking about for-profit companies offering services – like Google is with Google Trader. They don’t operate under the same development/grant funded subsidization that a lot of others do in Africa. Even if their goal was not to make a profit on this service, they still need to cover internal costs, as does every organization that isn’t provided with free money.

Final thoughts

This space in Africa, of offering services to the poor (in lieu of the governments actually doing their jobs), has been primarily “owned” by large development and aid organizations. This has created a false floor for the economy, as projects and initiatives are propped up by outside money and services rarely have to survive on their own. This is changing, as low cost and high value options come into the market, be they mobile phone operators providing new communication opportunities, or cheap chinese batteries and LED lights for local energy/lighting needs.

I’m sensing a flux in the space, like two bull buffaloes before they fight, the heavyweights in the aid industry and in business are circling each other before they knock heads. The marketing is over who is helping the poor and marginalized in Africa best. In the end the market will decide, and regardless of the messages spouted by both sides, the “poor African” will choose the winner.

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. However, that’s not the case here, we have expensive SMS services in East Africa, but the new entrants into the space always offer low rates, and the costs of switching providers is relatively low.

No, this is market-based competitive services and both non-profits and for-profits have the right to offer them at whatever price they like. Equally, individuals have the right to use it or not, be they premium SMS rates or not.

I’d like to hear some other African’s thoughts on this.

Do you want big multinationals like Google and MTN coming in and providing their services to you? Should we be asking questions for the poor, or is that condescending in itself? What is the sticking point here, and is there a side that I’m missing?

**UPDATE**
Thanks to Katrin’s email to Rachel Payne, Google’s lead in Uganda, we have the following response from her on this topic, and it does clarify quite a few unknowns:

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.

I hope this helps provide a bit more information that clarifies the questions raised.

57 thoughts on “Africa’s Poor: Premium SMS in the Crossfire

  1. Katrin Verclas

    Hi Erik — thanks for the post. I think you are missing the point, however. I suspect that this is actually not a premium SMS service. Instead, somehow Google and MTN seem to charge the same price that MTN charges normally for outside-the-country SMS as opposed to withing-network SMS. I am not sure why but I have an email in to Rachel Payne, Google’s manager for the project in Uganda (who was at MobileActive08, incidentally).

    Your question about what services a market will bear is a good one but that is actually not my point. I agree with you — let the market decide. What I do not understand in this case is why, if this is not a premium SMS service, why an outside-country rate is charged and I am curious about the answer.

    As far as the other point is concerned – that SMS in East, West, and South Africa is comparatively too expensive, is one that we indeed need to tackle and question, given how much cheaper SMS curiously is in India and other parts of Southeast Asia. That is a question I am definitely interested in looking at, and in fact, have done some research on already.

    But in this case, if Grameen Foundation advertises this as information services for poor people in Uganda, in particular, as the press release suggests, it seems that somehow the configuration of the service should be en par with in-country/in-network SMS charges for MTN.

    Best,

    Katrin

  2. Josh Nesbit

    Great post, Erik — I’m guessing the questions you pose will be answered by Africans far before you or I make sense of them. Like Kara, I’m interested in following the discussion.

    I do think we can explain some of the push-back from the nonprofit crowd:

    You write, “For instance, if a 220 shilling SMS can save you the 1500 shilling visit to the doctor or veterinarian, or give you a 10% higher return for your crops, is it worth it?”

    With the intense call for transparency in nonprofit work, the question is not often framed that way. Usually, the question is not “How much should it cost?” but, “How much does it cost?” If Grameen/Google/MTN answer that, I think it would make most people happy.

  3. Katrin Verclas

    One more follow-up: I copied the MobileActive list, you, and Steve on an inquiry to Rachel. We will find out what the reason is for the relative high cost of the service compared to a regular SMS. And if it’s an MTN premium service, I’ll eat my words :) )(though I would then question the way Google advertises the service in its description, not clearly labeling it as a premium service which it does not right now ;)

    Thanks!

  4. HASH

    @katrin – as we just were discussing over Skype, here’s a link for everyone else… :)

    It looks like the premium rate charged by MTN for their “SMS Info” service is also 220 UGS.

    You raised a valid question over advertising. Is it being locally advertised (offline) as a premium service? Only someone on the ground, or part of the campaign, can answer that.

  5. Nana Kwabena Owusu

    Excellent article. Sustainability is essential in all cases and many great poverty mediating programmes have languished because they were not sustainable. So to the broad question should it be free, let the value of the service to the consumers decide it.

    However in this particular case, I believe Katrin’s answer holds the key to if its Premium SMS or another reason for the price.

    What I do remember from testing Google SMS Search in Ghana was it sometimes took multiple SMS to get results, maybe something similar although that should equate to double the in-network charge. We await Katrin’s update on the price.

  6. HASH

    @Nana – I think the link I gave above directly to MTN’s site answers that question. Their premium SMS rate does appear to be 220 shillings.

    Here’s a question though… even if the price was over the normal premium SMS rate, is that a problem? It’s about profitability for the company, and it’s about whether a service is useful enough for you as a customer. If I think it’s too expensive at 500 shillings an SMS, but you don’t, and there’s enough people like you to keep them in business, then is that wrong? Or, does the wrong part come from it being marketed internationally as something for “Africa’s poor”?

  7. David K

    Google and MTN are corporations and can charge whatever they please for this service – but ultimately, market forces decide the future of the game. I don’t see anywhere on the Google Trade website stating that this is targeted to “poor people”. If anything the demo image shows “BUY Toyota Kampala” not “BUY 3 Tomatoes” so its clearly targeting a group of people with a semblance of disposable income.

    I think people forget that there is a rapidly growing middle class in Africa, and this is where the money is and probably the target of MTN and Google in this case. I can almost guarantee that the aim of this project is not to be a poverty mediating programme, but a money making programme… just my 2 cents.

  8. Nana Kwabena Owusu

    @HASH. Takes time for the comments to reflect or the bit.ly link has a lag, didn’t see the MTN pricing before my comment.

    Let me clarify my stand.

    If Google/MTN/Grameen should choose whether they want goodwill for providing a ‘public service’ as a CSR initiative or a commercial service for profit.

    For me, the service should be charged for at whatever price point the companies decide and the value of what it offers will determine if farmers accept or reject the price point.

    But they cannot do that and still portray it as a discounted service, that is where the misunderstanding arises and it should be clarified because goodwill translates into currency when we google instead of bing.

  9. Katrin Verclas

    David K – see the headline for the press release from Grameen Foundation: GF, Google and MTN Uganda Launch New Mobile Services for Uganda’s Poor. http://www.grameenfoundation.org/resource_center/newsroom/news_releases/~story=399

    First paragraph: “Grameen Foundation today announced the launch of a suite of mobile phone applications developed with Google and MTN Uganda (MTN) that deliver services and information that were previously unavailable to Uganda’s poor and disadvantaged communities.”

    Last sentence: “Looking ahead, the Grameen Foundation Application Laboratory will continue to develop applications and related services tailored to the needs of poor communities. It will work on a project basis with technology partners such as Google, mobile operators such as MTN, NGOs, foundations and government entities to develop new applications and innovative services for the poor in Uganda and beyond – working to transform lives through innovation in information access.”

  10. E Aboyeji

    Maybe they should make profit but it would be much better if they trained and empower poor people to work in such institutions so as to 1. Ensure competition for themselves later on (even if this is against their interests) 2. Allow the money to actually profit the local economy. If corporations can make a profit to cover their costs, they may as well make poor people part of the beneficiaries of these costs by employing qualified locals and engaging in corporate responsibility projects that will empower people (especially young people) to optimally use and understand their products to benefit their lives.

    The only I have with such projects is that much of the time, the money is allowed to go back to head quarters or foreigners. This drains the local economy and it just sucks out savings from the savings instead of creating new investment and actually empowering people. If Google watches for this common vice of African transnationals, they should be fine.

  11. Katrin Verclas

    David K — from the Google blog: “With these services, we hope to help alleviate some of the information and access to markets barriers for the poor, especially those in rural areas. So, when farmers in Iganga want to sell their maize, they can list their crop on Google Trader and a miller in another trading center can find and contact them to buy their goods. If a pregnant woman has a question about prenatal services, she can text her question to 6001 and get a response right away. Now people in any part of Uganda can easily find the information that is most critical to them.”

    And while not quite as explicit as Grameen, implication is clear.

    See also: “When we return to these villages with the product that was developed through their insights, we intend to understand whether the service truly is having an impact. To this end, we are conducting a social impact assessment with Innovations for Poverty Action, with support from Google.org, to build from the knowledge of what users need most, to understand what works best.”

    All from Rachel Payne’s post on http://google-africa.blogspot.com/2009/06/google-sms-to-serve-needs-of-poor-in.html

    And, I wonder, are we really arguing that all is fair in markets? How about loan sharking and price gouging that indeed preys on poor people (as we have seen in the US most recently with crazy mortgages aimed at poor and ethnic communities.) All fair? I beg to differ.

  12. HASH

    @Katrin – Not all is naturally fair in markets. Basic Business 101 principles still apply – that is, in a completely free market, that businesses will go to the extremes for profit and thus hurt society. This is where gov’t regulation and societal rules come into play. In this case, it’s at least superficially fair due to gov’t regulations across the board applying to the mobile operators. [Though, again, if there is collusion and price-fixing that is outside of the rules and outside of this particular discussion (that point needs its own post and discussion).]

    We have to be particularly careful when we make comparisons between Google and MTNs pricing of premium SMS and the US real estate meltdown. It’s probably a little much to compare that to US-based incentives and regulations that undermined stable mortgages, which was brought on by many parties, including the gov’t, banks, and other. In this case, I can’t think of charging their pre-determined premium SMS rates as predatory pricing.

    We need to go back to the original question: If you provide services to poor people, should you make a profit?.

    In this case there are two clarification points to be made.

    1. Is this an unfair monopoly? Do customers have any alternatives? Yes, they can still do things the way they did before yesterday – they can get the information physically.

    2. Who decides what is “too much” for a service for poor people? Is it us, in our middle- to upper-class lives, or is it the person in rural Uganda who decides that they are willing to pay 220 shillings to not get rot on their patch of banana’s this season? I’d say the latter, and if the price is too high it won’t get used and will die.

    This leads me to believe that even if Google were to say, “we’re selling this service for 500 shillings to help the poor, because that’s what it will cost for it to be a profitable business for us.” Then I’m okay with that. Because, it’s the end-customer, the poor African that will decide to use it or not based on their business decision.

    Hah! I’m a free-market capitalist… can you tell? :)

  13. Wayan

    I wonder what the key words will be for the trader program. With Internet-based search, you can scan responses pretty quickly, not so much with mobiles. And at 200 shilling outbound, i expect to see quick tag concentrations.

  14. tms ruge

    To answer your question Hash, YES. I think business should make a profit, regardless of who your target market is. Without a profit motive, it’s a charity / nonprofit undertaking…
    The market has the ability to decide wether or not it’ll pay for those services. As noted above, if indeed it’s too expensive, no one will pay for it, no matter how useful it is.
    The problem from my perspective is terminology & intent. Let’s not fool ourselves here, Google is planting a seed and cultivating customers. This isn’t charity, this is a multi-national curving out a market where none existed before, and thereby cementing first mover advantage. If it was charity, Google would foot the bill of all the SMS services at every level.
    I am surprised that no one sees the end game here. These services play nicely with Google’s investments in 03b Networks. Not only are they creating a platform of services geared to the needs of the poor, but they are also investing in the informational highway that will deliver much richer content down the line. As these services rollout, check to see which carrier is signing backhaul contracts with O3B.
    Africa is Rising, not declining… and Google is simply planting seeds. I just wish they’d be honest about it and not just try to sell it as an altruistic venture.

  15. bankelele

    Premium SMS should not be for messages that targets the poor; it should be left to entertainment, gambling, and other consumption related uses.

    Having said that, the SMS model is under attack, with good justification – the cost of an SMS (~$0.044) is increasingly making it a dinosaur in the world of data enabled phones. I can log in, browse and tweet or send 10 gmails in a few minutes, which are still cheaper than one SMS via Safaricom or other mobile operator in Kenya. Alternatively it’s much better to call someone, or in this case a pharmacy or nurse, and have 1 to 2 minute conversation, which will cost the equivalent of 3 or 4 SMS messages and have a better exchange of information.

    To sum up, organizations looking SMS as a means to communicate social messages, there are three upcoming challenges
    - data enabled phones which one can browse the net are making SMS redundant e g Safaricom now has one at $39,
    - With voice calls getting cheaper, SMS increasing costing much more as a communication means. E.g. voice calls in Kenya have dropped much faster, than that of SMS
    - it is one way medium where each party pays, while tweets, chat (on smart phones) allow relatively ‘free’ interactive sessions

  16. Mbugua Njihia

    Sustainability is key i must say. Thing is the service will add value to the end user…right? Therefore there must be a cost to that benefit, regardless of how small.
    I am of the opinion that the premium should be minimal though eg. regular text in Kenya is Ksh3.50 therefore if the networks made it possible for third party developers and VAS providers to ride off shortcode that can charge say 5sh with the margin (ksh 1.50) going to the content and application provider and regular sms cost going to network operator we will see more of this services rolling out.

    The current scenario allows only for the likes of Google to come round and offer the same for FREE as they have resources to run ad infinitum.

    Nokia launched a new data enabled handset into the market targeted to the rural “poor” with their push being adoption of mobile email…maybe they should be focusing more on local content that will be bundled into their data handsets so we can skip the limitations of 160xters…how much value adding info can one really deliver on 160xters?

  17. Melissa Loudon

    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.

    The way it’s being described, this seems to be the case with Google SMS Tips. Since it only works on one network anyway, I’d be interested to know the thinking behind not making it free.

  18. Eduardo Jezierski

    Things end up costing what people are willing to pay for them…
    Just in my experience rolling out SMS services in SE Asia, the higher SMS prices are almost expected, especially at the beginning of the lifecycle of a service. Unless you can launch from day 1 with tight relationships with in-country phone providers (which I would have expected out of the relationship with MTN). These relationships tend to be political, and sometimes take a long time to build as providers are typically part of a larger telco holding, so the ‘CEO’ is many times not in a great position to make bold decisions. And providers will tend to take advantage of artificial frictions introduced -or not removed- in the market (e.g. bad reliability between wireless providers). MTN is big (~ 100 MM subscribers I would estimate, from ivory coast to afghanistan) and local (not part of an asian holding) so it is in a leadership position to show how these friction elements and greed can be overcome to provide a service useful for society (priced for sustainability)

    One of the things we hope to do by rolling out Geochat in Bangladesh with Grameen Phone is to create an in-depth case study to evaluate the question:
    Can wireless providers make an increased profit by creating cheaper services with prices adequate for the bottom of the pyramid?
    If I can show a phone company that some other provider got ‘richer’ by being flexible in their pricing policies around socially-minded apps (health, development, education, energy, etc), I think the whole telco-for-social-good ecosystem could benefit. Crossing fingers.

  19. Steve Song

    Basic or premium, the comparatively high cost of texting in Africa is a barrier to grassroots innovation. I think that Google are not playing their strongest hand by supporting the impressive work of the Grameen Foundation. Not that GF don’t deserve support, they do. However, I believe Google’s potential for making a difference to access in Africa lies more in the policy sphere. More here.

  20. niti bhan

    Reading through the conversation, here are some early thoughts, followed hopefully by a post on this very important debate.

    From Rachel Payne’s email posted in the main blog, I gather they’re trying the “Flickr” style freemium “try before you buy” model. If the user finds that they are getting an ROI for their effort, the likelihood is higher that they would then be willing to pay for the service to continue.

    Hash’s comment #5 where he says “So the broad question should it be free, let the value of the service to the consumers decide it” makes me think of two points:

    1. the general irony of free, an entirely different debate taking place almost simultaneously online (godin, gladwell, anderson); elements of the “PC web’s” precendent of spoiling us all with “free”
    2. mobile users are accustomed to paying so best to start the digital divide bridging ‘mob web’ off on a right start rather than trying to sustain itself later by charging for stuff that’s already free (Google itself, for eg, which supports itself through text ads, something that wouldn’t work as a biz model among rural and/or poor Ugandans)

    Katrin’s comment #10 where the use (or misuse) of the word poor in the PR is rightfully being pointed out as misleading. this makes me wonder if it was as simple as the PR agency not knowing (or even the relevant product managers) who/how/what the “poor” are – what do I mean by this? Honestly, one man’s poor is turning out often to be another man’s middle class, and this is something I’ve seen more often when there’s no contextual knowledge of what levels (or rather, depths) real poverty can sink to, especially among socially secured OECD nationals. The tendency too of converting all local incomes into USD is another factor that leads to classification confusion in the local markets.

    Lastly, comment #16 from tms ruge – where is Google trying to sell this as an altruistic venture? they do not claim to be doing CSR, Charity or Aid, they are claiming to be offering a service to the ‘poor’ (not destitute, mind you) —> this entire debate through the whole conversation seems to conflate the need to be charitable to the poor (destitute) with the entirely seperate debate of “doing business profitably with the poor”

    Is it because its Google making this offer? Or are we opposing charging the poor for services? In the latter case, we should start first by defining the “poor” (a chappie on 5 euros a day is an entirely different animal from one who lives on one euro a day and very different altogehter if its urban or rural environments). In the former case, Google’s existing business model on the PC web is not viable on the future mobweb and this is a sensible first step – do we want all of these giants to continue laying the bricks for that bridge across the divide or not? If so, its got to make sense for them to do so, even Nokia charges Rupees 30/month for Life Tools.

    Throughout his post, Hash has talked about the “market will decide” or rather the users of the service will be the final decision makers and arbiters of whether there is *value* in this service and thus, whether their ROI is being maximized by the charge they pay for it. I’d rather that this method be used to evaluate whether this is a good product/service or not (user centered designed it may be or not) than one which is artificially supported by aid/charity/funding and thus limps on for far longer than it should, regardless of whether its useful to the customer or not. That, imho, is the problem with charity funded products and services, there’s no way to tell if its worthy of survival by the actions (or inactions) of the customers (endusers) themselves.

  21. niti bhan

    btw, Steve Song’s post linked to above is probably the strongest case to be made for the situation in Africa, just imho from the arctic circle. thanks for the link

  22. zulusafari

    Let’s turn the tables a bit and see if the socialists feel any different.

    If it were a local 2 man operation who managed to set up a used computer server to manage the SMS service, should they be able to make a profit on the service? Should they bend to the same free market principles that everyone else has to play by? Better yet, should gov’t regulation regulate the little 2 man operation as much as a large corporation? If the little man can’t make much money from the service b/c of gov’t stifling, then everyone loses out. So why go after the big corporation just b/c they are big? If they provide a service and the end user is willing to pay the price point the provider sets, is anyone losing out? Everyone wins, the market grows (via cheaper health care, 10% growth in crop yield), the economy improves (higher supply brings prices down), more taxes paid (to pay for roads, schools, electrical grids, water systems, post offices), and people’s quality of life increases.

    What’s the downside here?

    (PS. As a PURE 100% capitalist, I actually feel the gov’t shouldn’t be paying for schools & electrical grids, but that’s for another discussion.)

  23. pam

    great post steve.
    i believe the saviour mindset has to give. provide PEOPLE services you feel they need to run thier lives /businesses whatever. if your product is speaks to thier needs they will patronize it. if you have to adjust the product or price points then do. i didnt add the word poor to the above semi rant :-) just think of people as people. that might help

  24. ben

    Super discussion and one that is absolutely needed. I think its great that Google is taking this approach. What is the point of offering services if people aren’t willing to pay for them. How will you ever know you are actually solving a need? Increasingly, development projects are looking for ways to monitor and evaluate their products and services. For Google this won’t be a problem. If they don’t add value people won’t use their system. End of story!

  25. kiwanja

    With all the challenges, time and effort that goes into investigating, designing and rolling out these kinds of services, price is the easiest thing to fix (prices can be changed overnight – bad services can’t). It’s interesting that much of the discussion is around cost, and not how useful these services can potentially be to people who previously wouldn’t have had access to this type of information, whether or not they’d be willing to pay.

    I completely agree with you – people on the ground will decide whether or not it makes sense to send off an SMS based on their own (often changing) circumstances. I suspect that for some time to come we’ll see the use of these new services mixed with a continuation of ‘informal’ ways of doing things, and we’ll probably also see new behaviour, i.e. people clubbing together to share the cost of an SMS when the information is of wider value. Just as operators formalised ‘beeping’ and ‘flashing’ with their “Call Me” services, operators and service providers will respond and react to the use of the kinds of SMS data services rolled out this week, and that may mean revised formatting of messages, adding languages, altering text, adding more or less data, and yes – maybe even lowering prices. A lot will be learnt over the coming months while the services are free, and users will be smart enough to make a personal assessment on when it was and wasn’t worth potentially spending a couple of hundred shillings on a message. Rural Ugandans will be the ones to decide that, and they will.

    That aside, someone clearly has to pay for these messages, whether it’s via a cost centre transfer at MTN, or through Google, or Grameen, or USAID, or the UN, or whoever. Someone also has to do the work to set these projects up, and collect and render data for this service to work, and someone has to market and promote the service. This all costs real money. There is some irony that, in a space which suffers from a chronic shortage of working business models, as soon as there’s a sniff that money is being taken from ‘poor people’ (however you define them), people go up in arms.

    As to where the numbers come from, Josh is totally right on this. If the SMS charges can be justified and explained, then that would help. Costs do need to be covered, and profits *have* to be made for services to be continued, built upon and expanded, else you’ll end up with a continent full of services being kept artificially alive on donor life support forever or, in some cases, hugely valuable services discontinued due to a lack of funding. The real question is perhaps at what level these profits become unethical? People or organisations would and should find it hard to justify getting rich off of this, clearly.

    One of the most recurring problems I’ve experienced in over six years working in the mobile/development field is how projects generate income and build viable business models around their services. Anyone who has tried to develop a mobile service in a developing country will know the challenge far too well – the place is littered with the carcases of mobile pilots which failed because of it. While calls for cheap SMS will be great for person-to-person communication (but how quickly will spamming become an issue, though?), for services like those rolled out by AppLab charging at such a low level would likely deter innovation. If Nokia only sold at cost then it’s doubtful they would be so active in the developing world. How much of Nokia’s profits have been made off the back of poor rural Ugandans? It’s the private sector and free market economy that have given us this amazing environment to work in – let’s not forget that.

    In answer to your question, Erik, I believe a sensible and reasonable profit *should* be made from providing services to the poor, but that that profit should be recycled back into expanding the services, should they prove effective, and that prices should always be set as low as possible. A call on a village phone will cost around 200 shillings for a minute (or less, in fact) to ask someone for a cassava price. No-one seems too worried about that. Should calls also be virtually free?

  26. Katrin Verclas

    More on this – my POV – here: http://mobileactive.org/udate-premium-information-services-google-and-mtn-uganda-and-why-cost-so-high

    And I believe we urgently need to discuss and promote viable business models for mobile services. Nobody disputes that, kiwanja. I think it is foolish to ignore, however, that there are huge price inequities for SMS and data services in Africa as opposed to other parts of the world where telcoms do just fine at a fraction of the cost to poor and middle class consumers alike. This is distorted market in Africa and we in the NGO, development, SME, etc worlds should not excuse or promote practices that rip people off and prevent legitimate economic development – market-driven development. Monopolies, duopolies, possible price collusion, and weak regulators for essential mobile service do not constitute a free or fair market.

    This means facing some complicated and very uncomfortable realities — obviously not something either kiwanja nor Erik are quite prepared to do.

  27. HASH

    @Katrin – do you mind explaining the last sentence in your last comment? I’m unclear as to what “complicated and uncomfortable realities” it is that you’re referring to that I’m unprepared to face.

  28. Katrin Verclas

    Uncomfortable and complicated:
    * why is the cost of SMS in so many African countries so much higher than in comparable countries in terms of socio-economic development/poverty/econ development in SE Asia, for example?
    * why are regulators in Africa unable to create working telcom markets where there is true competition and market pricing?
    * what is the justification for the fact that 80-90% of SMS revenue is profit? CAPEX and OPEX expenditures do not explain that at all.
    * Why haven’t market forces brought the cost of an SMS down to something somewhat related to its cost + a reasonable profit? (that is a Steve Song question)
    * related: Is this price gouging? Why are the highest highest profit margin on the service “the poor” (poorest consumers) need most?
    * related: why are Kenyans in the lowest income bracket forced to spend 63.6% of their disposable income on mobile communications?
    * why, if we are to believe industry trends, is the cost in the Philippines for an SMS about to drop to a tenth of a cent (USD) while it’s somewhere near 7.5 cents on average in South Africa, for example? Are Philippino telcoms going for broke? (hardly, given that a billion SMS are sent there a day)
    * related: Why, in an imaginary Steve Song cost mode, does the Philippines makes nearly 3 times the revenue while charging less than 1/7 of the price than South African telcoms? (is this not only a distorted but a stupid market?)

    And I can go on ;) Let’s unpack this stuff, and actually rally around what really matters: The insanely high cost of mobile communications in Africa that is not exactly a free market at all. Now there is a cause one can believe in.

  29. Nana Kwabena Owusu

    Ok. I think the link in comment #28 by Katrin which is an update to her post solves almost all the issues.
    3 diff services aimed at diff income groups. The lowest income group is at regular SMS, other services at premium rate with free trial for a period.

    @Katrin. Only a small question. Should Google.org (investment or charity arm of Google I think) subsidise SMS to match pricing on SMS Channels in India? Is that the point u are trying to make about collusion. I’m just slightly confused.

  30. niti bhan

    @katrin ref: the philippines model, my 2 pesos worth

    Imho, purely subjective based only on observations while in rural Iloilo province in the Philippines back in Feb 2009, the telcos in the Philipines are the real gougers. If I were a member of the BoP or living on an irregular or uncertain income, I’d rather be an African mobile phone user than a Filipino one. Why? Because at the lowest, thus most affordable price points of prepaid such as 10 pesos (about a quarter, in USD approx) or 20 pesos (for context a 20 pack of Marlboros is 27 pesos) is valid for text or voice for just ONE day or 24 hours.

    Super biz model for the telcos, high turnover, major wastage for the customers, except for the workarounds like “passaload” which at a minor cost of a few minutes you can pass your about to expire load on to another user whereupon the clock goes back to zero for another 24 hours.

    No user can save any airtime minutes nor can they think of using them in any other way, imagine that in Kenya or Uganda etc? Would “sente” have arisen in this environment? grassroots innovation is being led by Africa, imho, by what little I see and hear, but I could be wrong on this point of course.

    A small biz owner talks about the unneccesary burden of having to load his phone with 30 pesos every three days just to keep his business going, regardless of whether he uses those minutes or not.

    /end rant

    Sorry for the rant but the Philippines is the last place I’d pick as an example of any genuine support for mobile phone subscribers at the BoP, it is indeed a stupid and distorted market

  31. Katrin Verclas

    Woot, Niti! Nice rant. Cost per sms is still a fraction but you are right about prepaid time limits. How about the much larger prevalence of mobile payments in the Philippines, though? Also, Philippines has a consumer movement, if small, that has been successfully pushing back VAT on SMS. For now, anyway… But yes, much work to be done. Why is there no global consumers union for telcom customers? Seems like every country has its share of issues that are contrary to consumer interests. And we still need to talk at some point ;) thanks!

  32. HASH

    @Katrin – 2 quick points:

    1) You stated, “This means facing some complicated and very uncomfortable realities — obviously not something either kiwanja nor Erik are quite prepared to do.” That kind of comment comes across a lot like a personal attack, and I’m not sure why. We are openly debating this right here, right now, in real-time and I haven’t seen anyone dodge the directions this debate is going. I’d like to keep this discussion civil and keep it away from the ad hominem attacks.

    2. The debate is quickly moving off of what I originally wrote this post about, and into ground that Steve Song picked up on SMS overpricing in Africa in general. That’s fine, as it’s a worthy debate in and of itself, but let’s make sure we understand that the original point we were discussing was started due to the post you wrote – about concerns that Google was charging rates above and beyond Premium SMS rates to the poor in Uganda (which was an excellent discussion point in and of itself).

    Having said all that, I’ll switch gears into this new discussion on the mobile operators and their overpriced SMS rates a little… By the way, none of the list that you give do I find uncomfortable, but some are complicated, simply because none of us who are debating this work for a telecom company.

    I’ll happily dig into the general SMS discussion at length, and the list you put up, in a bit. In short though, I absolutely agree with you and Steve on the fact that SMS in Africa is overpriced. If there’s any difference (and I’m not sure there is), it’s that I think it’s worth taking on both the big long-term, macro-level projects (like SMS pricing) while not losing site of the value of small, short-term projects going on within this less-than-adequate SMS space right now. It’s not perfect, but it is present, and that’s what we have to work with today. But no one gets anywhere with only short-term projects, a long-term strategy is needed as well.

  33. Kenyanpundit

    No need for a global consumers union…how about a national one for starters. The subject of a SMS boycott e.g. for an hour has been broached a number of times in Kenya to protest high prices, but it remains all talk for reasons that could be the subject of a whole other post e.g. lack of trust that everyone would join and our “peculiar” calling habits. For any consumer action to be meaningful, there needs to be consumers who do more than complain to each other…

  34. Katrin Verclas

    I think this is my point precisely — what Google is doing (and Steve says this well) is buying into an existing system that is deeply flawed. Defending that as you seem to do (arguing that the market will bear what it will bear) is something I am not willing to do when the overall pricing scheme is so moribund. These two issues are connected. Maybe I have not been very clear here, so let me do it in bullets:
    * prices for SMS (and data) are too high in many African countries, including Uganda (even if there is a more effective/progressive regulator)
    * Google, by buying into this system rather than doing something about it AND cloaking SMS Tips as a way to ‘serve the poor’ is ingenious at best, given the pricing schemes that are certainly not serving poor people at even 110 shs per sms.
    * This is not a short-term versus long-term conversation. This is one we should have now. By pitting these services as interesting as they may be against what really is the problem and starting to address it in a meaningful way (which is admittedly elusive), you are really putting forth a red herring.
    * This is not market versus subsidies, not commercial companies versus NGOs, this is about what is fair telecommunication pricing in a given market for important and needed services (and across providers).

    Which really is altogether Steve’s point.

    And to state one more

  35. zulusafari

    @Katrin

    This disturbs me:
    * related: why are Kenyans in the lowest income bracket forced to spend 63.6% of their disposable income on mobile communications?

    Who is FORCING Kenyans to use mobile phones? They must find a high value in using mobile communications, so they are willing to spend a high amount of their income. Besides, you yourself labeled that income ‘disposable’. Do you know your economics? Disposable is just that, disposable. It can be used for anything without ill effect b/c your other necessary costs have been covered by your other income.

    We can nick-nack all day about the finer details of telecom in African vs. other places (which isn’t *fair* b/c every country has a different set of variables that effects pricing & also isn’t fair b/c nearly every detail discussed is an assumption), but the reality is there are two totally different viewpoints on how economics works (rather *should* work) and therefore two different views on how the telecoms *should* be operating in the African space.

    @Katrine

    I don’t think I’ve seen you answer a single question from the other ‘camp.’ What is wrong with the market paying for a service. An SMS loaded with info that helps you yield a higher crop *should* cost more than a sms to a friend saying ‘what r u dng 4 lunch’.

    As I’ve pointed out before, doing business in Africa is considered VERY high risk. Uganda was just recently rated as the 6th riskiest country in the world!!!!! An investor/businessman can’t just overlook that fact. Where their is risk, there is cost and it will effect the price of a service or good.

  36. Melissa Loudon

    @zulusafari
    Without presuming to give an answer for Katrin and also recognising that there will always different ideological positions in this conversation: What is wrong with people paying for a service really depends on the service.

    An SMS with info to improve farmers’ crop yields is different to a social SMS to a friend, but it’s also different to an SMS asking ‘Can I get AIDS from kissing’ or ‘Where is the nearest clinic to Banda’ (Google SMS Health Tips and Google SMS ClinicFinder respectively).

    I don’t think very many people are arguing that access to basic health services should be restricted by ability to pay. Health services helplines (at least in South Africa) would be toll-free if called from a landline. The problem is no landlines, and the solution is SMS, except now the service user is required to pay for the SMS. This means exclusion on the basis of ability to pay.

    Add to that the very high profit margins on SMS, and the amount of money being poured into ensuring that people have access to health services. I just wonder whether Google could had brought their influence to bear to align things better.

  37. Jon

    I agree that Google could’ve apply some pressure to get the price down, but then the argument would become that a foreign multi-national was unfairly upsetting the market by offering services below what any other local service provider could offer. They would have been torn to shreds in the press for that, so I think they made the best decision possible. I don’t agree that Google should subsidize the service, as it falls on the .com side and not the .org side for very specific reasons (promoting investment and social responsibility versus more bottomless-pit aid). In full disclosure can’t say I’m unbiased as I’m somewhat involved with Grameen, Google, and MTN in differing capacities here in Uganda.

  38. HASH

    What we have to remember is that mobile phone services, SMS or otherwise, are commercial services. The reason that anyone, the poor included, have access to them is because people in business are willing to risk millions of Dollars in the hope of making millions of more Dollars. If they don’t make a profit, no one gets a single SMS at all.

    The temptation is to start thinking of SMS and mobile phones as a “right”, but there’s a danger in that way of thinking. These are not public services we’re talking about – those would be provided and/or subsidized by the government.

    For those who don’t think that normal market forces are at play, take a closer look at what is actually going on in the countries we speak about. Kenya has 4 mobile operators, Uganda has 5, Tanzania has 5, etc… The people in these countries have a choice to go with a lower cost operator at any time, and in each one of these countries there is an operator trying to carve out a niche by offering cut-rate SMS packages.

    Jon Gosier makes an good point about Google bringing their muscle into play here, and the difference between their .com (commercial side) or their .org (dev/aid side). I think we all agree it would be nice if they were able to help push lower SMS rates across the board in the countries that they work in, but we can’t hold them solely responsible for market forces in any country – in Africa or otherwise.

    In essence, I agree that there should be some pressure put onto these mobile phone operators to get them to do something about pricing. However, the strategy to go about doing that, whether it’s outside pressure being forced onto them, or an internal strategy trying to work with them, is something that I don’t know the right answer for. Maybe both.

  39. zulusafari

    @Melissa

    You are kind of making my point. Google’s SMS service is not a social call and not a medical call (which should also be charged, as there are expenses to operate the service) so they should all incur different costs.

    As a capitalist, I would argue that health services should be restricted on a person’s ability to pay :-) (however, I feel strongly that churches and non-profits could be used to offer services for free or low cost, but it’s not a ‘right’)

    re: exclusion on ability to pay for SMS:The exclusion would also come from a person being able to buy a phone in the first place. Should we start handing out mobile phones for free to everyone?

    Where are you and everyone else getting these assumptions that carriers/telecoms are making ‘very high profit margins’? Did you ever take into account the VERY HIGH costs for setting up an entire mobile phone network, to staff it, to maintain it.

    I assume it was in Google’s own control as to whether to charge the premium rate to begin with. If it was appropriate for the market and in line with their need to cover their costs AND *gasp* actually make a profit, they would have and might in the future, lower their fees for the service.

  40. niti bhan

    @ zulusafari ~ there’s a limit you can go with that approach of “only those who can pay get the service”; its not fundamentally feasible in countries like india or across sub saharan africa unless you wished to serve only 2 to 5% of the population.

    On the other hand, as Hash has mentioned above, Google’s information service, while critical, is not a “right”, at least not in the same way that healthcare, basic education, utilities, post & telegraph would be. {and its an entirely different conversation as to just how much of a ‘right’ sms and mobile services are becoming as ‘essential’ to the wellbeing of the poor (or otherwise) in the developing world}

    we’ve conflated so many threads of debate here that we seem mired in a fuzzy lack of clarity, here’s the top three conversations I see us having here:

    1. telco costs,
    2. Google’s specific pricing,
    3. profiting from the poor

    Which one shall we address first?

  41. zulusafari

    @niti bhan

    How is it not ‘fundamentally feasible’? This is econ 101. Everything has a cost and some people do not find it worth the cost or cannot afford it regardless of the value they put on the service.

    Are you saying in India everything is done at cost or below cost? I doubt it.

    An economic variable not considered: When there is mass demand and a larger quantity of a service/product is made, the costs drop in production. (wal-mart effect) This allows for little to be charged for a service/product. In India they have over 1.15 Billion people. Pretty much everyone has access to mobile networks and has phones. Uganda is a bit different. With still limited access to mobile networks and still a MUCH more limited population (31Million) there just isn’t the mass quantity to bring down cost.

    Where as this service in Uganda might get 1000 hits a day (pure assumption), the same service in India might get 100,000. In Uganda 1000 SMSs have to share the costs where in India 100,000 SMSs share the same cost. Is the math making sense?

  42. Eduardo Jezierski

    Katrin – Market forces *are* at play. Providers have a good -the network- that is growing in demand rapidly, and they and the government controls the supply and the competition rate. Providers are seeing astronomic growth even at current price points. People choose to pay prices. And SMS happens to be one of the last stronghold services where ‘net neutrality’ was never part of the picture, so controlling which services are accessible by whom is part of their deal. (Imagine if facebook or youtube *had* to do a deal with Comcast to allow customers to access it, and Comcast decided to charge *you* $1 per youtube hit or per hour of skype. Market forces would still be at play, but different than what you are used to).
    And if folks think they can find a better price point, nothing stops them from striking a deal with another provider in Uganda and corner the google service off as an expensive service.

    @niti calls out this sort of application is not a ‘right’ and I agree, but I can attest that healthcare, education, etc systems have to go over the same if not more hurdles than a commercial system to get deployed with operators and Google backing.

    So we are looking at the result of market forces… telcos have capital and the ideal business plan…1) Explosive demand 2) Regulated supply 3) …? 4) Profit!

    Unless someone comes up with a disruptive communication tech such as allowing cooperative-funded antennas to mesh up and/or purely handset-to-handset comms (and good luck running that past spread spectrum regulation), the carriers and their government-provided license on the spectrum will dominate. And they will efficiently find the max prices that folks could afford to pay.

    It seems that under the current paradigm better prices could come up with a combination of policy, bold leadership, vocal consumers/providers, and aggressive competition between telcos . ..#fail x 4?

  43. Steve Song

    There is both a short and a long game here. The short game is building innovative services over SMS at current market rates. The long game is opening up competition on the continent. Both are important. It is not an either/or scenario. The lack of effectively competition in the telecommunications sector is not unique to Africa. Any sector subject to network effects naturally tends to monopoly. However, the problem is more acute in Africa because the cost of communication represents a bigger chunk of the average individual’s income.

    There is a tendency to view policy and regulation as if it were some mysterious god-like force that people can’t engage with. Well, as individuals that is true. However, there is an opportunity to self-organise and have a voice for change that can make a difference. By coincidence, this is exactly what happened with civil society groups AND Google AND Microsoft working together in the U.S. in terms of lobbying for unlicensed access to television white spaces spectrum.

    Finally, in a shameless plug, and I mention it because Ed brought it up. :-) I think “allowing cooperative-funded antennas to mesh up” is a very cool idea. At the Village Telco project we are on the verge of mass production of affordable, meshed wireless access points that you can plug an ordinary telephone into. They’re called Mesh Potatoes and are designed to be lightning-proof, low-power (sub 2W), Internet/Phone devices for the developing world. If you’re interested, get in touch. :-)

  44. Simon mcIntyre

    The challenge is for businesses to have the guts to look for other models outside of the premium SMS space in order to open their businesses up to those people who need the information but can’t afford it. For most “poor” people even the standard cost of an SMS is too high for them to use a service frequently.

    We’re exploring new push SMS models in Nigeria with our free Lagos Traffic service. Users can sign up to receieve a free daily SMS traffic update and we’ll be monetising the service in the near future. The real challenge though is getting people to want and use information, even when it’s free people don’t seem to want it. The continent is not generally used to making information based decisions.

  45. niti bhan

    What would be interesting in the whole ‘cost of telco’ space is if a) the proposed MTN & Bharti Airtel merger happens and if then, b) there’s any pricing strategy disruption?

    the other thought is whether Google’s information SMS could be ad supported like the “call me back” facility in South Africa? That would simply be a variation on their existing model

  46. josh goldstein

    Two thoughts, cross-posted here http://is.gd/1mhKk:

    (i) This is the lowest price ever for a premium SMS service in Uganda.

    I was talking about this debate to a director of one of most prominent software companies in Uganda. He reminded me that this is the first time in the industry’s history that a premium service has gone for less than 220UGX. This is a good first step, but most likely not a deal that anyone besides Google could get immediately. Many of the premium SMS services [usually targeting the rich] are adding their own fee (usually around 60UGX) onto the 220UGX base and making a killing

    (ii) What kind of pressure would it take to get network providers to lower SMS rates voluntarily?

    In Uganda, the best things are done without government intervention. Think about how amazing it is that an NGO, an Internet company and mobile company got together to launch this program without government intervention (contra programs run by, say, USAID or UNDP). Often when the public pressures an industry to reform, the industry comes together to create voluntary restrictions. This recently happened when the Internet industry came under fire for violating human rights in China. Is this concievable with the mobile industry in Uganda? If so, it would have to start with pressure from companies that are innovating in the SMS information space.

  47. Liko Agosta

    Further to my post …

    If the service sucks, it will fail. If the users dont see value at that price point, it will fail … I am interested in see what will happen 4 months down the road or 1 year down the road. I dont agree that just because its Africa, all things have to be cheap. If there is a new service that saves the masses time and money, its fair that the provider charge a premium. This will be the biggest motivation for providers to come here to Africa and invest in improving stuff

    In many markets, people pay a premium for some products till when the market changes things … think iPhone, SMS in Africa, Internet in Africa… many cases

    Google has done a good thing, and I dont believe there are in it for the money (220UGX?)

    I hope the service works.

    Thanks

  48. Brendan

    Great post. Resulted in a lot of comments.

    I recently posted similar thoughts on why we should attempt, whenever possible to charge for perceived development solutions:
    http://www.cashewman.com/2009/08/8-reasons-to-charge-people-for-your-development-solution/

    Of course, I wasn’t talking about profit explicitly, as you are. But many of the reasons are the same, and there’s a common theme through our perspectives: we should trust people to make economic decisions that work for them. Whether it’s for a text or water pump, they’ll do what works for them. Let’s leave the pity and judgment at home.

    Again, good post.

    B

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  53. Dele Oluwole, MBCS

    Great post coming from African. There is no doubt in the fact that some day Africa will be a continent that every one would want to visit. Civilisation began in African and I am sure the chicken will come home to roost some day.
    I also read some very inspiring posts at http://www.whitedrum.com

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