At the back of beyond
Oct 7th 1999
From The Economist print edition
Mobiles have become a powerful tool for bringing the poor and isolated into the global economy
DRIVE across the dusty plain between Johannesburg and Pretoria, and you suddenly come across a mirage: a giant glass pyramid rising out of nowhere. The pyramid is the centrepiece of one of the world’s great corporate follies, the headquarters of Vodacom, South Africa’s largest mobile-phone operator. The base of the pyramid is a huge piazza strewn with giant sofas and chairs. The senior management is housed near the apex. The rest of the 400-strong staff work in open-plan offices, well-supplied with “pause areas” to relax in. The corridors are decorated with original art. The health club has a huge indoor pool. A good-sized shopping mall sells nothing but mobile phones. There is even a concert hall featuring artists such as Aretha Franklin.
As you pass through the giant replicas of mobile phones that guard the entrance to Vodaworld, it is hard not to worry about inequality. The multiracial staff is pampered and prosperous. But one reason why Vodacom has decided to put its headquarters in the middle of nowhere is that downtown Johannesburg is being killed by crime. Might the wireless revolution pull the world still further apart?
A visit to the township of Soweto suggests a more positive picture: the phones are transforming the lives of the poor as well as the rich. The township contains a remarkable number of “phone shops”: businesses that specialise in renting out time on the phone. Some of these shops are housed in shipping containers, others operate from holes in the wall. But most of them seem to use cellphones (firmly tethered to the desk), not landline phones.
Jackson Thubela, a young phone-shop proprietor, explains that he recently shifted from wireline to wireless because his old phones kept breaking down—mainly because thieves made off with the copper wire—and the landline company, Telkom, would not send people to fix them. Mr Thubela’s container, which he has decorated with pictures of rap stars such as the late Tupac Shakur, is perpetually crammed with all sorts of people, from neatly dressed air-hostesses to men in tracksuits. The phone business not only provides Mr Thubela with a reasonable living (which he supplements by selling single cigarettes), it also attracts other businesses. A cobbler has set up shop near the container. Next to him a man in Muslim dress sells single sweets.
Mr Thubela and his customers are in part the beneficiaries of enlightened legislation. When the previous government licensed Vodacom and its competitor, Mobile Telephone Networks Holdings (MTN), to provide digital service back in 1993, it insisted that they install 30,000 payphones in underserved areas over the following five years. Vodacom estimates that it has created up to 5,000 jobs in local communities through the payphone system. Some of the phones are in areas so remote that they have to be powered by car batteries and solar energy.
A growing number of black South Africans are avoiding the queues at the phone shops by buying their own mobiles. Pratty Mphuthi is not a rich woman: she has raised four daughters on her own and now runs a bar, restaurant and catering business. But not only does she have a mobile phone of her own, so have three of her four daughters. “A mobile phone is a necessity if you are a busy person,” she explains. The mobile allows her customers to contact her when she is on the move, but it also means that her nine-year-old can tell her if she has to stay late at school.
Plenty of people who are much poorer than Ms Mphuthi also have phones. In many areas of Johannesburg the streets are lined with home-made signs offering basic services such as housepainting or gardening that include a cellphone number. Often several poor people club together to buy a phone and a phone card. When the card runs out, they can still receive incoming calls for nothing.
When four-fifths of the world’s mobile-phone subscribers live in the rich world, it may seem odd to suggest that for millions of people like Ms Mphuthi mobile phones represent their best chance of plugging into the world economy. But more and more countries are establishing cellular networks (see chart 6), and developing countries are seeing some of the highest rates of mobile growth anywhere in the world. Many of these phones are getting into the hands of people who are far from rich.
Emmanuel Forestier, a telecommunications specialist at the World Bank, points out that people in the developing world often use mobile phones for quite a different reason from those in the rich world: mobiles may be the only kind of phone available. Some 40m people in less-well-off countries are currently waiting for fixed-line telephones. In places such as Russia and Moldova the average wait is ten years; in isolated areas the wait is an eternity, because it makes no economic sense to lay fixed lines for a handful of people.
Cellular operators frequently improve things just by providing competition. When the government of Ghana licensed an operator four years ago, the established landline company dropped its prices by half and started operating outside the capital. They also bring invaluable supplies of both finance and expertise to developing telecoms markets, because almost all of them have foreign partners. The ITU points out that foreign companies have even been willing to invest in risky countries such as Cambodia, the Democratic Republic of Congo and Rwanda.
Cellular operators also have some inherent advantages over fixed-line companies when it comes to venturing into poor and isolated areas. Their costs are much lower, because they do not have to dig holes in the ground and lay expensive copper wire to get to their customers. “You simply put up the masts and you are in business,” says Nape Maepa, South Africa’s chief telecoms regulator. They can break even with a much smaller number of subscribers. They can also install new phone services much faster than landline companies. Lucent Technologies, for example, installed 800 base stations in some of the remotest bits of Argentina—enough to bring a telephone service to half a million previously isolated people—in just five months. During last year’s earthquake in Honduras it deployed mobile base stations in a matter of days.
James Bond, the head of the World Bank’s telecommunications division, points out that wireless companies are better at tailoring their products to different income groups than their fixed-line competitors. Fixed-line companies issue monthly bills, which in poor countries are often wrong. Wireless companies sell a whole range of services, from pagers to pre-paid cards. The price of a mobile handset may be steep, but the cost of the handset and service connection fee is still lower than the installation charge for a new fixed line in many developing countries (assuming you can get one.) And mobile costs are coming down all the time. Mr Bond points out that there is a limit to how much cheaper fixed lines can get because they involve heavy investment in labour and materials. Conversely, mobile phones share the propensity of all digital technologies to become both cheaper and more powerful over time.
The result of all this is nothing less than a revolution: a commodity that has traditionally been in short supply—telephone service—is now available on demand. Perhaps the most heartening part of this revolution is that it is bringing many people into the world economy who have hitherto been excluded from it, and who would probably remain excluded if they had to rely on fixed-line phones.
Bangladesh, for example, is a telephone desert: there is only one fixed-line phone for every 275 people (compared with one for every 50 in neighbouring India), and about 90% of the country’s 68,000 villages have no access to a phone. But the country is now seeing the birth of a new breed of entrepreneur: “phone ladies” who make their living out of connecting the poor to the rest of the world. They buy expensive state-of-the art cellphones, using loans made available by the Grameen Bank, a private company that became famous for making microloans to villagers to buy cows or build fishponds. It is now trying to provide peasants with a portal on to the digital world. With its new subsidiary, Grameen Telecom, it has launched a programme which in the past two years has supplied 300 villages with phones. The company hopes that in five years’ time everybody in the country will be within two kilometres of a cellular phone.
Mobile phones are not only releasing a wave of entrepreneurialism in developing countries; they are also helping people to escape the greed of middlemen by providing them with the information they need to strike better bargains. Bangladeshi farmers go to the phone ladies when they want to find out the proper value of their rice and vegetables. The cocoa and coffee farmers of the Côte d’Ivoire used to sell their products to local middlemen at a small fraction of their market value because they knew no better. Now they club together to buy mobile phones for checking current prices in the London commodity markets.
The wireless revolution is also allowing whole countries to leapfrog the developed world into a wireless future. The most spectacular example is China. Not long ago hardly anybody there had access to a phone. Now China, with about 34m subscribers, is the biggest market for cellular phones after America. The country is adding more than 1m new subscribers a month, which means that by the end of next year it will have more than 50m subscribers. Both connection fees and handset prices have halved in the past two years. And talk is cheap: Chinese subscribers average 400 minutes a month on the phone, three times as long as Americans.
It will be a long time before the average Chinese can afford a mobile phone, but those who can stretch to them are getting the latest technology. Michael Ricks, who runs Ericsson’s Chinese operation, points out that China will be among the first countries to introduce third-generation mobile phones: after Hong Kong and Japan, but at roughly the same time as America. That tells us quite a lot not just about China but America, too.
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