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Barriers for increasing mobile phone penetration in emerging markets
Goal:
Identify factors that affect most to mobile phone penetration in emerging markets.
Scope:
Consisted of 18 emerging markets.
To who:
Study to Nokia entry business line.
Mikko Kielinen
Global cellular markets
•Market growth in develop markets slow
•Developing countries has big potential
•Characters of developing countries:
Lower ARPU
Low low end phones
Big customer base
Parties involved
• Market regulator• Maximizes social profit by controlling the whole market
Cherish effective competiton
Control the operators (interconnection, optimizes scarce resources…)
• Cellular operators• Attract customers whose ARPU is less than 5€/month
Manage costs
Services to attract these groups
• Mobile phone manufacturers• Average cost per terminal below 50€
Manage costs
In order to increase mobile phone penetration market players have to adjust these conditions
Why some countries succeed better than others?• Mobile phone penetration is correlated heavily to wealth
But:
0
5
10
15
20
25
30
35
40
45
50
0 1000 2000 3000 4000 5000 6000 7000 8000
BKT/Asukasluku (€)
Mat
kap
uh
elin
tih
eys
(%)
Etelä-Afrikka
Turkki
Thaimaa
Venäjä
Saudi Arabia
Filippiinit
Meksiko
Brasilia
Kiina
Kolumbia
Indonesia
Egypti
Iran
Vietnam
Nigeria
Intia
Pakistan
Bangladesh
Why some countries are better than the others??
•Saudi Arabia (7706€!!!) and Philippines (787€) have the same penetration.
•Thailand (40%) and Iran (5%) have the same GDP/Capita
Study
Methods• Interviews and literature survey
• Contacts as close as possible from these countries• 32 contacts
• Market attributes to measure market conditions• 17 attributes • Divided to between all market parties (regulator, operator and terminal
manufacturers)
• So, 18 markets each of them having 17 market attributes.• All of these attributes were evaluated with “traffic light”• Most important attributes are discovered by comparing these “traffic
lights” to mobile phone penetration and wealth.• These results are also compared to growth in penetration during summer
2004 – summer 2005
Results (1/3)By: Mikko Kielinen
PENETRATION CONTRIBUTOR Ch
ina
Ind
ia
Bra
zil
Ru
ssia
Ind
on
esia
So
uth
Afr
ica
Nig
eria
Iran
Sau
di
Ara
bia
Ban
gla
des
h
Mex
ico
Ph
ilip
pin
es
Pak
ista
n
Tu
rkey
Th
aila
nd
Eg
ypt
Vie
tnam
Co
lom
bia
Current penetration: 22,0
%
3,5%
30,2
%
33,4
%
9,9%
44,7
%
3,7%
5,1%
32,5
%
2,0%
31,5
%
31,5
%
2,8%
44,0
%
39,8
%
8,5%
4,2%
17,9
%
Affordable terminal availabilityFinancing for terminalsSales taxCustom duties
Operator business model driversService taxCall tariffsminutes for 5% of monthly GDP/capitaCalling to other operators networkSMS tariffsx sms for 5% of monthly GDP/capitaDenominationsAvailability of eRefillCalling Party Pays-schemePopulation coverage
Regulatory driversInterconnection charges ? ?Number of operatoesForeign direct investmentWTO membership
Results (2/3)
CountryPenetration
2004GDP/Capita Points
Philippines 31.5% 787 € 43
Thailand 39.8% 2 008 € 41
India 3.5% 491 € 40
Indonesia 9.9% 821 € 39
Iran 5.1% 1 748 € 36
Vietnam 4.2% 427 € 36
Mexico 31.5% 4 926 € 35
South Africa 44.7% 3 325 € 35
Columbia 17.9% 1 632 € 35
China 22.0% 1 032 € 34
Turkey 44.0% 3 316 € 34
Nigeria 3.7% 329 € 34
Egypt 8.5% 801 € 33
Saudi Arabia 32.5% 7 706 € 33
Bangladesh 2.0% 310 € 32
Brazil 30.2% 2 422 € 31
Pakistan 2.8% 415 € 31
Russia 33.4% 3 105 € 29
•More simplified picture where “traffic lights” are evaluated with points
Points:
Conclusions:
•Success of Phillippines and Thailand can be seen from here
•India and Indonesia will have rapid growth in the near future.
•If the market conditions are not good wealth compensates this heavily (Russia, Brasil and Turkey)
Green 3
Yellow 2
Red 1
Results (3/3)
Winners
• Countries where high penetration compared to wealth:• Light taxation
• Custom duties are small
• Cheap calls
• Micro charging
• Countries where growth was fast during 2004 - 2005:• High wealth!!
• Expensive calls
• RPP or CPP
• Interconnection charges not based on costs
Losers
• No competion
• Charging of prepaid account expensive
Conclusions
• Competition!!!• 3 or more equal operators
• Market conditions are more important if the country is poor
• Prepaid connections are must!• Minimum prepaid account charge value should be small
• Network coverage correlation:• Network coverage >60% penetration can be over 5%
• Network coverage >80% penetration can be over 30%
• Interconnection charges shouldn’t be based on costs
• Calling party pays and Receiving party pays are both allow rapid increase in penetration
• The effect of tariffs is smaller than expected
Thank you…