Bridging the Digital Divide with Mobile

Tuesday, 16 May 2006 19:19  |  Petteri Terho, Nokia Networks

The Digital Divide

The digital divide - the idea that, as information and communication technologies are affordable only to higher income groups, they in fact increase income disparities - has been at top of the agenda of any organization concerned about socio-economic development. There has been a clear consensus for some time that bridging the digital divide goes a long way towards boosting development, and more recently the focus has been on building that bridge.

A recent issue of The Economist asserted that "Encouraging the spread of mobile communications is the most sensible and effective response to the digital divide." Mobile phones bring a host of socio-economic benefits at both individual and national levels. Increased penetration and the additional productivity it generates at individual level are passed on directly to accelerated growth in GDP. A recent study by the London School of Economics showed that an increase of ten mobile phones per 100 people boosts GDP growth by 0.6 percentage points. Enabling universal access, that is all people regardless of wealth and where they live should have access to communications and information, via mobile communications is thus a noble goal and the concrete target to shoot for, as it will bridge the digital divide.

Toward 3 billion global subscribers

As the mobile industry extends toward the 3 billion global subscriber milestone and as growth shifts to lower income segments, the key challenge to achieving universal access is affordability. Three main factors govern affordability

• total cost of ownership of mobile communications (TCO);
• the cash barrier faced by users to get and stay connected; and
• the regulatory environment.

Total Cost of Ownership

TCO consists of the mobile handset price, the service fee and taxes. All these elements play important roles in TCO and its influence on penetration as analyzed in a 2005 GSM Association (GSMA) report entitled 'Tax and the Digital Divide'. According to this study, penetration of mobile communications is significantly related to TCO; i.e. the lower the TCO, the higher the penetration. The same relation is valid for the service price, as it represents on average over 70% of TCO; in other words, the lower the service price, the higher the penetration.

However, this significance does not apply to the handset price, as it represents on average less than 15% of TCO. Unless the service price and taxes are also lower, a lower handset price alone does not relate significantly to higher penetration. Focusing on taxation, every reduction of one percentage point in sales taxes on mobile services could result in a two percent increase in mobile penetration between 2006 and 2010 in any surveyed country. So lowering taxes on mobile communications will actually increase governments' total tax revenue in the long term.

Cash Barrier

The second element of affordability is the cash barrier. Low-income consumers tend to have less cash in hand, so even though they may be willing and able to spend 5-10 USD per month on mobile communications, they may not have such an amount available for a one-time payout. There are innovative ways to tackle the cash barrier for both the handset and the service, such as micro-financing of handsets and lower denominations of prepaid top-ups. Lower income consumers need low value top-ups of 50 dollar cents or less and the opportunity to buy them anywhere. Electronic refill solutions (e-refill) meet both these needs.

Thus it is important to work closely with operators to develop and implement innovative, profitable subscriber packages that accommodate the earning cycle of lower-spending consumers. Network solutions and services specifically designed for new growth markets - like Nokia Connect GSM Solution - aim to increasing efficiencies and reducing the cost of ownership for operators to cater for the needs of theses new mobile users.

Regulatory Environment

As pointed out in a 2006 GSMA report entitled 'Regulation and the Digital Divide', the third corner of the affordability triangle - the regulatory environment - is crucial. Governments can combat a range of specific mobile growth inhibitors. These include high customer duties, handset sales taxation, service taxation and inefficiencies in service tariffs, all of which add to the total cost of ownership and restrict growth. Fair and open rules governing healthy competition can and should be put in place by independent regulatory authorities to ensure a free market. No less important is compliance with international technology standards, which enables leverage on global scale benefits.Flexible and innovative authorities can take an active role in supporting development, and the GSMA report encourages such activity. It also calls for a new spirit of collaboration between governments and network operators. "In order to maximise the significant benefits to economies and societies, governments, regulators, and mobile operators should develop a long-term partnership based on consultation collaboration and sustainability," it concludes.

Petteri Terho is Director of Strategy and Business Development in New Growth Markets for Nokia Corporation.

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