An Excellent Anti-Poverty Program

 Posted by on 10 July 2005 at 6:01 am  Uncategorized
Jul 102005
 

One of the best anti-poverty programs for the so-called developing world that I’ve heard about is this profit-oriented initiative by mobile phone manufacturers. Basically, the manufacturers are recognizing that there’s a huge untapped market in the third world for inexpensive yet reliable mobile handsets. Here are some relevant excerpts:

Mobile phones have become indispensable in the rich world. But they are even more useful in the developing world, where the availability of other forms of communication — roads, postal systems or fixed-line phones — is often limited. Phones let fishermen and farmers check prices in different markets before selling produce, make it easier for people to find work, allow quick and easy transfers of funds and boost entrepreneurship. Phones can be shared by a village. Pre-paid calling plans reduce the need for a bank account or credit check. A recent study by London Business School found that, in a typical developing country, a rise of ten mobile phones per 100 people boosts GDP growth by 0.6 percentage points. Mobile phones are, in short, a classic example of technology that helps people help themselves…

…[A]s markets have become saturated in the rich world, manufacturers have started to realise that their future growth depends on catering to the needs of developing nations. As a result, they have been working with operators to develop new extremely cheap handsets and to boost adoption in the poor world.

Several operators from developing countries teamed up earlier this year under the auspices of the GSM Association, which promotes the use of GSM, the world’s dominant mobile-phone standard. They invited the handset-makers to bid for a contract to supply up to 6m handsets for less than $40 each. The contract was won by Motorola. Delivery of handsets began in April. The low cost is not due to cross-subsidy from high-margin handsets or “corporate social responsibility” funding, insists David Taylor of Motorola. “We do make a margin — a much smaller margin, but it is still a margin,” he says…

Such a phone cannot simply be a cut-down version of an existing handset. It must be very reliable and have lots of battery capacity, as it will be used by people who do not have reliable access to electricity, says Mr Taylor. Motorola’s low-cost handset has a standby time of two weeks. And the handset must conform to local languages and customs: Motorola’s handset, for example, includes a football game in Africa, but a cricket game in India.

Nor can the makers skimp on design. Kai Oistamo of Nokia, the world’s largest handset-maker, notes that people in poor countries have to spend a far larger proportion of their income than those in the rich world to buy even the cheapest handset. “So looks and brand are highly important — it is much more of a status symbol in those societies,” he says. And it is wrong, points out Mr Prahalad, to assume that consumers in poor countries will not be interested in fancy features such as music-playback. Since they cannot afford multiple devices — an iPod, a PC, a PlayStation — they may want more from their mobiles.

As handset-makers respond to this new market, prices will continue to fall. “We will give you the volumes so that you can continue to drive down prices,” promised Sunil Mittal, boss of Bharti, a big Indian operator, at a recent industry conference. On June 29th Philips, a Dutch electronics firm, announced a new range of chips designed to take handset costs below $20.

As the article makes clear in the subtitle (“Mobile-phone firms have found a profitable way to help the poor help themselves”), this could be a significant win-win for both the manufacturers and their potential customers. Something like this is a far better than sending aid money to corrupt governments of third world countries.

(In many ways, this is analogous to the problem that Howard Roark enjoyed working on with respect to the Cortland Homes project in The Fountainhead, namely creating a way to build decent quality housing that would be affordable for hard-working customers on tight budgets, and also profitable for the developers.)

   
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