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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

Barriers for increasing mobile phone penetration in emerging markets Goal: Identify factors that affect most to mobile phone penetration in emerging markets

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Page 1: Barriers for increasing mobile phone penetration in emerging markets Goal: Identify factors that affect most to mobile phone penetration in emerging markets

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

Page 2: Barriers for increasing mobile phone penetration in emerging markets Goal: Identify factors that affect most to mobile phone penetration in emerging markets

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

Page 3: Barriers for increasing mobile phone penetration in emerging markets Goal: Identify factors that affect most to mobile phone penetration in emerging markets

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

Page 4: Barriers for increasing mobile phone penetration in emerging markets Goal: Identify factors that affect most to mobile phone penetration in emerging markets

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

Page 5: Barriers for increasing mobile phone penetration in emerging markets Goal: Identify factors that affect most to mobile phone penetration in emerging markets

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

Page 6: Barriers for increasing mobile phone penetration in emerging markets Goal: Identify factors that affect most to mobile phone penetration in emerging markets

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

Page 7: Barriers for increasing mobile phone penetration in emerging markets Goal: Identify factors that affect most to mobile phone penetration in emerging markets

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

Page 8: Barriers for increasing mobile phone penetration in emerging markets Goal: Identify factors that affect most to mobile phone penetration in emerging markets

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

Page 9: Barriers for increasing mobile phone penetration in emerging markets Goal: Identify factors that affect most to mobile phone penetration in emerging markets

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

Page 10: Barriers for increasing mobile phone penetration in emerging markets Goal: Identify factors that affect most to mobile phone penetration in emerging markets

Thank you…