Thoughts on Africa’s Mobile Operators and Disruption

Generally speaking, mobile network operators (MNOs) were highly disruptive in the 90’s, but have continued to decrease in this over the last decade. Operators are no longer the offensive, attacking force of yesteryear, instead they’re putting up barriers and defensive walls trying to protect what they have and hide.

Instead, the disruption comes from the open web. Whenever the operators put up a blocker to what users want, usually in the form of price or access to their infrastructure, the web finds a way of displacing them. Examples abound in location based services, text messaging, video and photos.

There’s a reason operator revenue is shifting away from voice and SMS towards data. The products that got the operators here are receding in relative value. The user wants what’s available in the open web, and that’s just not found, or being provided, by the operators.

So, what is an MNO to do?

Change. Disrupt someone else. Innovate.

One of the biggest disruptors, even in this decade of MNO mediocrity, has been Safaricom – the 800lbs gorilla in my own back yard. They’ve invested in new technology, products and business models like few others, and are reaping the rewards of those strategic moves.

Do I like having a monopoly player in my market? No.
Do I feel bad for the other MNOs (Orange, Airtel and Yu) who are crying now? No, they did this to themselves.

Let’s dig into their golden-child, Mpesa, the mobile peer-to-peer payment system that’s did $3.15 billion in transaction in just the last 6 months(!). How do you know they succeeded in innovating? Well, the easy answer is looking at their profitability and user tie-in that they get from Mpesa. Look more closely and you’ll notice the other signal, all of the bank lobbies in other countries have put up huge walls, blockading an aberration like Mpesa from having sway in their country.

[Sidebar: A warning to everyone who wants to see innovation in their country. Over regulation of telecommunications and banking strangles it. South Africa and Nigeria are cases in point.]

So, Mpesa sounds to everyone like a huge success story. It is, and it’s not. What we think of as an amazing disruptive product is really only halfway up the mountain. There are too many corks being popped while money lies sitting on the table. This stems from 2 main things, which seem to be an issue of Vodafone primarily, since they own the IP for Mpesa and own a 40% stake in Safaricom:

  1. The lack of leadership by Vodafone to NOT open up an API that other businesses could build on and increase usage. They’ve stifled innovation on their own product.
  2. Their lack of vision in the global payments space. Their shortsideness in not spinning out Mpesa as its own company to take on Visa and Mastercard directly. This was one of the few products and business models that could do that.

More MNO Innovation

So, Safaricom might be stifling its own product, but they’re still not short on disruptive features and products. They do fall prey to bureaucracy and political infighting, but they’re also one of the most aggressive MNOs globally, always trying new things. Three more examples:

  • Creativity in 3g data pricing and accessibility down market.
  • First-movers in 3g and exceptional data coverage countrywide.
  • Okoa Jihazi, their product that gives a loan of credit from the operator to users who are tight on cash.

Other examples of MNOs who are innovating in Africa are:

Airtel Madagascar working with Movirtu with their new Cloud Phone, a way for people to share a phone, but keep the SIM card in the cloud.

MTN, testing Mobile Phonebook by FeePerfect out of Cameroon, a product that puts a phone book into everyone’s phone.

Small + Big

Clearly, innovative products can come to market through MNOs. What’s the common denominator on these products though? Most of them came from small companies and were then incorporated into the MNO.

Ideas come from outside, they come from the edge. Scale comes from inside, from the massive infrastructure provided by the MNO. They have to work together to succeed.

I work with, and talk to, hundreds of entrepreneurs. They have ideas, prototypes and products that just might be what the users want. They lack the access to the infrastructure to roll it out.

As an MNO, you boost your chances of success in this increasingly chaotic space by not walling everything off, but by opening it up.

Snapshot: Mobile Data Costs in East Africa

IMG_0073I get asked a lot about mobile data costs in East Africa, so thought I would put it in writing for everyone to find easier.

Mobile data access charges have fallen drastically in the last several years in East Africa, in large part to the SEACOM undersea cable arriving and increased competition between operators. Data connectivity is the new battleground, fighting not just amongst mobile competitors, but also with traditional ISPs.

In the mobile data connectivity space, each country sells either data capped bundles (or time capped bundles in the case of Uganda) that can be loaded onto a SIM card. There are out of bundle charges, priced per Megabyte or Kilobyte, but these rates are exorbitant, so anyone who connects regularly uses a bundle of some sort.

More creative offerings come out each month by the mobile operators, making it more confusing and harder to compare against competing services, but also offering some incredibly low pricing for entry-level users, or consumers who don’t need high speeds.

No doubt, a downward trend of mobile data charges will spur the growth of mobile web usage and publisher forwards.

Kenya
In Kenya, from charging internet usage at 10 shillings a minute just a few years ago, now cyber cafes charge 1 shilling a minute for browsing. The use of mobile data has been made easier by increasingly cheaper rates. For example in Kenya, Safaricom are offering a limited 10MB worth of mobile internet usage at 8 shillings per day. Zain Kenya offers unlimited internet usage for 3,000 shillings per month. Orange Kenya on the other hand are having a 7-day unlimited offer for their 3G network at 1000 shillings.

Uganda
In Uganda costs for mobile data connectivity have been driven down by the SEACOM cable landing in 2009, and led by costs cutting by Orange. Orange was first to the market with cheap, affordable 3G service and has played a major role in driving market prices down. They were the first to institute 5,000Ush/day & 25,000Ush/week packages for Internet – finally making it accessible to the common man. MTN, the larger network in Uganda,

Tanzania
Tanzania boasts some of the most unreliable data networks with the least penetration within East Africa. Zain and Vodacom both offer 3g, while Tigo offers GPRS. Zantel and Sasatel are CDMA networks, with EVDO connectivity. All networks, no matter what the speed of the connection, charge a flat rate of 40,000Tsh for 1gb of data. Data prices have gone down, but not noticeably.

While not possible to do an apples-to-apples comparison of the rates between the three countries, here is a pricing comparison chart for 3g data on 1Gb bundles and 1Mb pay as you go costs for the leading operator in each country:

Kenya
(Safaricom)
Tanzania
(Vodacom)
Uganda
(MTN)
1Gb of 3g data
(bundle)
2500 Ksh 40,000 Tsh 49,000 Ush
USD equivalent 1Gb of 3g data
(bundle)
$30.90 $26.56 $21.63
1Mb of 3g data
(Pay as you go)
8 Ksh 120 Tsh 900 Ush
USD equivalent 1Mb of 3g data
(Pay as you go)
$0.10 $0.08 $0.40

As is true in this hyper competitive market, these numbers will change (hell, I’m probably already off on something). The overriding trend is that the costs are going down for consumers, even if slower than we’d all like to see.

[Picture courtesy of Stefan Magdalinski]

Should we be Building SMS or Internet Services for Africa?

Interesting mobile phone

Probably one of my favorite discussions of this trip was entered into after the Uganda Linux User Group (LUG) meeting here in Kampala. It was about whether we should be providing internet protocol (IP) services first, rather than SMS. If cost is the single most important factor for any mobile service aimed at ordinary Africans, then what will it take to move the ball from the SMS court to the IP court? This isn’t just for non-profits to consider, but everyday businesses as well.

Phones that can access data networks have always been in short supply here, so the easy answer has always been to use SMS, just because that’s what people have in their pocket and can use right now. While there are great arguments for either decreasing the costs of SMS, or of moving to IP, the practicality of that was remote due to the costs involved. Either you need a big organization, or a government, who can force the mobile operators to lower their rates on SMS (their cash cow), or you need to have the costs of data-enabled phones to decrease enough that the majority of users switch to them.

There is an argument that says that Grameen’s and Google’s recent deal with MTN Uganda didn’t go far enough in pushing for free, or cheaper, messaging for their new services. Whether you agree or disagree on that matter isn’t relevant if you bypass the argument altogether and provide services via data, which is drastically cheaper, using SMS as the backup.

What a lot of people don’t realize is that for the first time, last year, mobile phones shipped to Africa with data service capabilities outnumbered the simple SMS-only phones that are so prevalent on the continent (Gartner 2009). Of course, this doesn’t mean that there will be a majority of IP accessible phone users immediately, but it is on its way.

Equally important to understand, and a point that increases the momentum of the mobile services over IP argument, is the fact that where there is mobile penetration, there is also available data services. This stands true in Uganda, where MTN says there is 92% GPRS coverage on their network. It’s even true in countries still trying to catch up, like Liberia, where though there are only islands of coverage, that coverage generally comes with data.

Reinier Battenberg, who runs the only local hosting in Uganda, brought up a great point. The fact that Google and Grameen weren’t able to significantly alter MTN’s position on the prices of SMS doesn’t matter. What matters is that Google didn’t offer an IP-based solution for their new Google Trader that they launched. That’s simply unbelievable! It’s doubtful if that type of work would take more than a day for an engineer to implement. Instead of effectively providing an end-run on the strategy around SMS, they just played the same game that the operator wants to play and will win. Something that Google really wants to do is drive people to the web, so why not at least provide web-services for those that can use it? It doesn’t make sense… all around it’s both curious and a questionable strategy.

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.

New SMS Services in Uganda from Grameen, Google & MTN

Grameen Foundation’s AppLab has released a new suite of mobile phone applications developed in Uganda, using Google SMS Search and in partnership with MTN Uganda as the mobile operator. The services include:

  • Farmer’s Friend: a searchable database with both agricultural advice and targeted weather forecasts
  • Health Tips: provides sexual and reproductive health information
  • Clinic Finder: helps locate nearby health clinics and their services
  • Google Trader: matches buyers and sellers of agricultural produce and commodities as well as other products. Local buyers and sellers, such as small-holder farmers, are able to broaden their trading networks and reduce their transaction costs. (known locally as “Akatale SMS”)

Caterpillar Question - Grameen, MTN and Google team up in UgandaBack in 2004 Grameen started to replicate in Uganda what they had done in Bangladesh with their Village Phone Operators. That is, they would go 20km beyond the best phone signal and provide a loan to a lady in the village that would let her buy a phone and an antenna that would extend the range of the network. The lady would then resell services to local individuals who didn’t have access, or the ability to buy their own phone.

I’m actually quite impressed with this initiative, as it fits in perfectly with Grameen’s mission: providing opportunity through the most basic of mobile phones. All of these services work on SMS-only phones, so anyone with a single bar of coverage and a phone has access to a lot of knowledge in their hands.

Here is a promo video from Uganda, explaining why these services are needed:

High-powered Partnerships

Beyond the applications themselves, what I find most compelling is how the Grameen Foundation collected such a high-powered group of partners. The list reads like a who’s-who of innovative mobile services and development in Africa with Google, MTN Uganda, Technoserve, Kiwanja.net, and BRODSI to name a few. It’s a mixture of for-profit businesses, local NGOs and non-profit tech organizations.

I remember a conversation a couple months back with Sian Townsend (Google) and Ken Banks (FrontlineSMS) about how they did the field studies for this project. Sian shared with us some of her research on mobile user experience while in Uganda – it was extensive. Through a month of rapid prototyping and studying how users were actually using the new services, the team quickly learned what was important and how to better serve information up to the end-user.

Though I haven’t been able to personally test the services yet, with this group, I would expect the results to be better than average. For instance, Google doesn’t tend to get involved with ideas that don’t scale. I imagine that they see replicability with both SMS Search and Google Trader in many other countries as well. Rachel Payne, the country manager for Google in Uganda, has a blog post here, but not much more information on the long-term plans for Google Trader. I’d be interested in seeing how this compares to Esoko out of Ghana.

google-trader-picture