Mobile Phones and Development

Stephen DeAngelis

November 6, 2009

I have written a number of posts about how mobile phones have changed life in developing countries (see, for example, Mobile Phones in Africa and Relief, Development, and the Digital Divide). The Economist agrees that “poor countries have already benefited hugely from mobile phones,” and asserts that more benefits are on the way [“Mobile marvels,” 26 September 2009 print issue].

“In places with bad roads, unreliable postal services, few trains and parlous landlines, mobile phones can substitute for travel, allow quicker and easier access to information on prices, enable traders to reach wider markets, boost entrepreneurship and generally make it easier to do business. A study by the World Resources Institute found that as developing-world incomes rise, household spending on mobile phones grows faster than spending on energy, water or indeed anything else. The reason why mobile phones are so valuable to people in the poor world is that they are providing access to telecommunications for the very first time, rather than just being portable adjuncts to existing fixed-line phones, as in the rich world. ‘For you it was incremental—here it’s revolutionary,’ says Isaac Nsereko of MTN, Africa’s biggest operator. According to a recent study, adding an extra ten mobile phones per 100 people in a typical developing country boosts growth in GDP per person by 0.8 percentage points. In 2000 the developing countries accounted for around one-quarter of the world’s 700m or so mobile phones. By the beginning of 2009 their share had grown to three-quarters of a total which by then had risen to over 4 billion. That does not mean that 4 billion people now have mobile phones, because many in both rich and poor countries own several handsets or subscriber-identity module (SIM) cards, the tiny chips that identify a subscriber to a mobile network. Carl-Henric Svanberg, the chief executive of Ericsson, the world’s largest maker of telecoms-network gear, reckons that the actual number of people with mobile phones is closer to 3.6 billion.”

 

The article asserts that there are three important trends reshaping the telecom landscape.

“First, the spread of mobile phones in developing countries has been accompanied by the rise of home-grown mobile operators in China, India, Africa and the Middle East that rival or exceed the industry’s Western incumbents in size. These operators have developed new business models and industry structures that enable them to make a profit serving low-spending customers that Western firms would not bother with. Indian operators have led the way, and some aspects of the ‘Indian model’ are now being adopted by operators in other countries, both rich and poor. This model provides new opportunities, especially for Indian operators. The spread of the Indian model could help bring mobile phones within reach of an even larger number of the world’s poor. The second trend is the emergence of China’s two leading telecoms-equipment-makers, Huawei and ZTE, which have entered the global stage in the past five years. Initially dismissed as low-cost, low-quality producers, they now have a growing reputation for quality and innovation, prompting a shake-out among the incumbent Western equipment-makers. The most recent victim was Nortel, once Canada’s most valuable company, which went bust in January. Having long concentrated on emerging markets, Huawei and ZTE are well placed to expand their market share as subscriber numbers continue to grow and networks are upgraded from second-generation (2G) to third-generation (3G) technology, notably in China and India. The third trend is the development of new phone-based services, beyond voice calls and basic text messages, which are now becoming feasible because mobile phones are relatively widely available. In rich countries most such services have revolved around trivial things like music downloads and mobile gaming. In poor countries data services such as mobile-phone-based agricultural advice, health care and money transfer could provide enormous economic and developmental benefits. Beyond that, mobile networks and low-cost computing devices are poised to offer the benefits of full internet access to people in the developing world in the coming years.”

In a complementary article [“The power of mobile money“], The Economist notes that “mobile phones have transformed lives in the poor world” and claims that “mobile money could have just as big an impact.”

“With [mobile] phones now so commonplace, a new opportunity beckons: mobile money, which allows cash to travel as quickly as a text message. Across the developing world, corner shops are where people buy vouchers to top up their calling credit. Mobile-money services allow these small retailers to act rather like bank branches. They can take your cash, and (by sending a special kind of text message) credit it to your mobile-money account. You can then transfer money (again, via text message) to other registered users, who can withdraw it by visiting their own local corner shops. You can even send money to people who are not registered users; they receive a text message with a code that can be redeemed for cash. By far the most successful example of mobile money is M-PESA, launched in 2007 by Safaricom of Kenya. It now has nearly 7m users—not bad for a country of 38m people, 18.3m of whom have mobile phones. M-PESA first became popular as a way for young, male urban migrants to send money back to their families in the countryside. It is now used to pay for everything from school fees (no need to queue up at the bank every month to hand over a wad of bills) to taxis (drivers like it because they are carrying around less cash). Similar schemes are popular in the Philippines and South Africa. Extending mobile money to other poor countries, particularly in Africa and Asia, would have a huge impact. It is a faster, cheaper and safer way to transfer money than the alternatives, such as slow, costly transfers via banks and post offices, or handing an envelope of cash to a bus driver. … Mobile money also provides a stepping stone to formal financial services for the billions of people who lack access to savings accounts, credit and insurance. Although for regulatory reasons M-PESA accounts do not pay interest, the service is used by some people as a savings account. Having even a small cushion of savings to fall back on allows people to deal with unexpected expenses, such as medical treatment, without having to sell a cow or take a child out of school. Mobile banking is safer than storing wealth in the form of cattle (which can become diseased and die), gold (which can be stolen), in neighborhood savings schemes (which may be fraudulent) or by stuffing banknotes into a mattress. In the Maldives many people lost their savings in the tsunami of 2004; it hopes to introduce universal mobile banking next year. Financial innovation has a bad reputation at the moment, because exotic derivatives were one of the causes of the credit crunch. But mobile money and other new ideas that could help the poor provide a useful reminder that financial innovation in itself is not always a bad thing.”

The article goes on to report that mobile banking could have been even more widespread had it not been impeded by traditional banking establishments and government regulators (who worry about money laundering).

“But in recent months there have been some more hopeful signs. Kenya’s success story has demonstrated mobile money’s potential, and its benefits are starting to be more widely appreciated. More enlightened regulators are no longer insisting that these services meet the rigid rules for formal banking. Some banks, meanwhile, have come to see mobile money not as a threat but as an opportunity, and are teaming up with operators. And phone companies have studied Kenya closely to learn how to establish and market a successful mobile-money scheme. MTN, Africa’s biggest operator, has launched a mobile-money service in Uganda in conjunction with Standard Bank; it appears to be doing well. MTN is fine-tuning its service in Uganda before rolling it out across Africa. Banks and regulators elsewhere should take note. Instead of lobbying against mobile money, banks should see it as an exciting chance to exploit telecoms firms’ vast retail networks and powerful brands to reach new customers.”

Two other areas in which cellphones are changing the world are health care and agriculture [“Using cellphones to change the world,” by D.C. Denison, Boston Globe, 14 October 2009]. The article is about how an MIT project is leading to programs that help health workers and farmers in developing countries. Denison reports:

“It’s an unlikely medical device: a sleek smartphone more suited to a nightclub than a rural health clinic. But it’s loaded with software that allows health workers in the remote northernmost Philippines province of Batanes to dramatically reduce the time it takes to get X-rays to a radiologist – and to get a diagnosis for a patient being tested for tuberculosis. The software, created by a nonprofit organization called Moca, is one of nearly two dozen cellphone-based projects that have sprung from NextLab, a course at the Massachusetts Institute of Technology. It’s taught by Jhonatan Rotberg, who was sent to MIT by Telmex, one of Latin America’s largest telecommunications companies, to bring cellular technology to the ’90 percent of people’ who fall outside of the marketing plans of most phone companies. … When Rotberg settled into his research and teaching position at the Media Lab, he made a discovery: The same device that powers teenage texting in the United States can be adapted to help farmers in Mexico and illiterate women in India.”

What makes cellphones such a powerful development tool is the same thing that makes them a useful social media tool — ubiquitous connectivity.

“‘Cellphones are inexpensive, personal, connected, and everywhere, [Rotberg] said. ‘They are also the perfect Trojan horse for social development, because you don’t have to convince anyone to buy one.’ In NextLab, Rotberg challenged students by asking, ‘Can you make a cellphone change the world?’ And students have responded, creating nearly two dozen projects and three start-up ventures that have been working with communities in developing countries like India, Vietnam, and Mexico.”

There is a potential downside to the accelerated use of mobile networks for everything from banking to deal making and that is the growing requirement for broadband capacity [“The Coming Mobile Meltdown,” by Holman W. Jenkins, Jr., Wall Street Journal, 14 October 2009]. Jenkins writes:

“Broadband’s take-up has repeatedly been jumpstarted by must-have applications. Napster drove the shift from dialup to wired broadband. Now Apple’s iPhone is playing the same role in triggering explosive growth in the wireless Web. Unless we miss our guess, this dynamic is about to rudely change the subject from net neutrality to a shortage of wireless capacity to meet enthusiastic consumer demand. … Consider: A single YouTube viewing consumes nearly 100 times as much cellular bandwidth as a voice call. In Asia, some 200 million people already watch video on their smartphones. No wonder Google (whose YouTube unit serves up one billion videos a day) is an investor in a new undersea fiber line connecting North America to the Far East. More omens: Data collector AdMob reports that mobile Web page requests grew 9% from July to August—a 180% annual growth rate. And Motorola recently went public with worries that a handful of mobile Slingbox users (a video streaming device) could wipe out cell service in a whole neighborhood. This is a mobile meltdown in the making.”

Jenkins believes the answer to this conundrum is not going to be increasing capacity but limiting use by charging large bandwidth users higher fees. As Jenkins puts it, “Usage-based pricing, … is one of the few ways to keep excessive demand in check (though key help will also come from technologies that opportunistically dump wireless traffic back into the fixed Net).” The flat-rate services that have attracted so many people to buy and use smartphones is no longer tenable according to Jenkins. Usage-based pricing will undoubtedly affect how people in the developed world use their mobile phones; but it could have greater and more negative impact on the poor living in the developing world. He notes that “Google, Microsoft, Amazon and others” are resisting usage-based pricing but he believes their efforts are futile unless they are willing to subsidize mobile-phone use. Even if they were to do that (and I wouldn’t bet on it), governments would still have to free up more spectrum for use by mobile phone networks. With the next billion people waiting to get connected and the likelihood that that connectivity will be through a mobile phone rather than a PC, the issue of broadband capacity is a serious one.