Improving Affordability of Telecommunications: Cross-Fertilisation between the Developed and the Developing World

Abstract

The paper outlines the exploratory project Telecoms demand: Measures for improving affordability of telecommunications in developing countries, directed by Professor Robin Mansell (Media and Communications Department at the London School of Economics), managed by Claire Milne, Visiting Researcher at the LSE, and funded by IDRC as part of the LIRNE World Dialogue on Regulation third cycle research programme. It will discuss the implications of the project’s findings, with reference to both developing and developed countries, and look at possible new research building on these foundations.

This project focused on better understanding affordability as key to understanding telecom demand which, in turn, is central to sound business cases for investment and network development in developing countries. The project investigated patterns of expenditure on communications, with emphasis on variability by income group, and developed an initial ‘toolkit’ of measures that operators and regulators can use to improve affordability. Research methods have included literature review (with a focus on reports on consumer use of telecoms), statistical analysis of household survey data in four developing countries, and cross-sectional econometric analysis.

The starting point was the idea of universal service and universal access, widely seen as having three components: availability, accessibility and affordability. Recently availability (often termed access) has had most attention. Our focus was affordability. Within any set of income and price levels, market-oriented techniques can significantly improve affordability. They are relatively easy to deploy, and may lead to a ‘win-win-win’ situation for industry, consumers and regulators. Of course, exploiting market-oriented techniques should not detract from efforts to intensify competition, introduce lower cost technology and bring control of undertakings closer to communities.

Recent rapid growth of cellular service has brought phone service for the first time within physical reach of huge populations. And advances in technology, especially GSM, have both brought down costs and provided practical means to target affordable telephony packages accurately at almost everyone within coverage. Two key features of GSM underlie these conclusions – its cost structure, and its software-based service provision. Micro-prepay is especially significant. For most operators, it is technically and financially easy to deploy – arguments against it are mainly commercial.

The spread of mobiles has given rise to a perception that affordability is no longer an issue. The study shows that for large populations this is too simple a conclusion. There is growing evidence of high price elasticity of demand for telephone service in developing countries, which suggests that more adventurous pricing may reward operators. Our work showed common patterns across countries, which may warrant more research. There is uncertainty over the spending potential of lower income groups.

If existing operators do not offer low-priced service in rural areas, there is a clear case for offering these opportunities to other companies, including local start ups with community support aiming at service, rather than profit. Furthermore, the study has highlighted the creativity displayed in developing markets. The paper will discuss how developed countries can learn from achievements in the developing world, as well as vice-versa.