The Adoption of Mobile Phones in Emerging Markets—Global Diffusion

and the Rural Challenge

Kas Kalba, Ph.D.

6th Annual Global Mobility Roundtable

Center for Telecom Management

University of Southern California

Marina Del Ray, CA

June 2, 2007

Agenda

1. Examine Selected Adoption and Diffusion Issues in Emerging Markets

2. Explain Differences and “Anomalies”– High-fixed China vs. leapfrogging India– Ageing Eastern Europe vs. youthful Latin America

3. Address the Rural Challenge Ahead

Kalba International, Inc.

Some Adoption Indicators/Drivers

• Disposable income• Legacy service ?• Income distribution ?• Proximity to high-

adoption markets ?• Demographics• Traffic/crime/climate?• Culture?

Kalba International, Inc.

• Competition (no. of operators)

• Prepaid and CPP• Asymmetric

interconnection fees• Technical standards?• Population density• Spectrum allocation?

Emerging vs. Developed Market Factors

Developed: Adoption1. Income per cap., yes

2. Legacy service, yes

3. Income distribution, maybe

4. Extreme climate, maybe

Developed: Diffusion1. No. of competitors ??

2. Population density?

3. Tower permits?

Emerging: Adoption

?

Emerging: Diffusion

?

Adoption Issues in Emerging Markets

• Does the income effect decline?

• Does “legacy” become irrelevant?

• What is the role of prepaid?

• Do more operators equal more adopters?

Kalba International, Inc.

Income still a big factor

Kalba International, Inc. Data Source: ML

Mobile Adoption and Income: Emerging Markets, 2006

0

2000

4000

6000

8000

10000

0 20 40 60 80 100 120mobile penetration

GD

P p

er

ca

pit

a

The more legacy, the more mobile

Kalba International, Inc. Data Source: ML

Mobile vs. Fixed Penetration in Emerging Markets

0

5

10

15

20

25

30

35

0 20 40 60 80 100 120mobile penetration

fix

ed

pe

ne

tra

tio

n

Legacy effect in low-income markets--

Kalba International, Inc. Data Source: ITU, 2005

Mobile vs. Fixed Penetration, African Markets

0

5

10

15

20

25

30

35

0 20 40 60 80mobile per 100 capita

fixed

per

100 c

ap

ita

Prepaid is inverse to income

Kalba International, Inc. Data Source: Merrill Lynch

Figure 4: Prepaid and Income, Developed and Emerging Markets, 2006

0

20

40

60

80

100

120

0 20000 40000 60000 80000

GDP per capita

% p

rep

aid

HH size is inverse to adoption

Kalba International, Inc. Data Source: Merrill Lynch and UN

Mobile Adoption and HH Size in Selected Emerging Markets

2

3

4

5

6

7

8

0 10 20 30 40 50 60

mobile penetration

HH

siz

e

More operators = more adopters?

Kalba International, Inc. Data Source: ML

Mobile Adoption and Level of Competition in Emerging Markets, 2006

0

10

20

30

40

50

60

70

80

2 3 4 5+no. of operators

mo

bil

e p

en

etr

ati

on

Why China Has Led India

China

• 35% mobile, end of 2006• High economic growth—and lower prices

But..• Govt.-owned operators (2+)• Extensive fixed lines: 26.6% • High savings rate• Older population • No CPP (until 2007)

• Kalba International, Inc.

Kalba International, Inc.

India

• 13.2% mobile, 2006• Large “middle class”• More young people• Private operators (up to 6)• Few fixed lines: 3.8%

But..• Low GDP per capita • Only recent reduction of prices

HH size is inverse to adoption

Kalba International, Inc. Data Source: Merrill Lynch and UN

Mobile Adoption and HH Size in Selected Emerging Markets

2

3

4

5

6

7

8

0 10 20 30 40 50 60

mobile penetration

HH

siz

e

Latin America vs. Eastern Europe

Eastern Europe• Ageing population (c.20% >60)• High legacy phones (c.30%)

But..• High mobile: Poland 94.3%,

Russia 103.8%, 2006• Proximity to explosive W.

Europe markets and regulation• Positive geography?

• Kalba International, Inc.

Latin AmericaTwice as many young people—

half as many older• Asymmetric regimes

But..• < 55% mobile (Brazil and

Mexico, 2006)• Larger households• Fewer legacy phones (c.20%)

The Rural ChallengeThe Situation

• 3 billion of world’s 6.7B inhabitants live in rural areas• Limited progress since Maitland Commission

Supply Challenge • Low density, remote, rugged topography, etc. • High rollout and maintenance costs

Demand Challenge • Rural populations often much poorer than urban• Over 1B have never held a mobile phone (guestimate)

Kalba International, Inc.

Kalba International, Inc. Data Source: Merrill Lynch

The Rural PromiseThe Promise: • Increasing rural coverage in Africa; India starting to work on the

problem • Output-Based Aid (OBA) projects being organized across the globe

• Cheaper technology: $10 phone/$1 ARPU, WiMAX?

The Bottom line: Will the global market continue to grow new subscriptions by 25%, as it has in recent years, in which case the whole worldcould be mobile by 2010—or will it take a decade or more toroll out the infrastructure and attract adopters in the ruralareas of the developing world??

Kalba International, Inc.

Kalba International, Inc.