Reaching and serving low income users profitably

Angel Dobardziev/Ovum
12 Mar 2009

Reaching and serving low-income users profitably will be one of the biggest challenges for the mobile industry in emerging markets. Our new report outlines three areas operators must consider in serving this market and provides guidance on profitability strategies through examination of best practice in operational and service areas.

A close connection between marketing and network operations is crucial to profitability in emerging markets and different markets require different approaches and considerations. A number of emerging market operators face significant operational challenges at least partly due to a disconnect between marketing and network operations.

For example, several African operators are being warned by regulators to tone down their marketing, as the pace they are building network capacity cannot accommodate the heavy flow of new customers.

In the more sparse rural areas, such disconnect is more likely to produce the opposite challenge, which is an under-utilised network as a result of poor choice of coverage or inept marketing. Successful operators bring marketing and network operations close together in targeting rural areas.

With 70% of India's population in rural areas, for instance, a profitable roll-out strategy there should focus on covering the most attractive rural communities first. Only then can a service provider focus on driving up profitability through locally-focused promotions, public access phones and PCs to demonstrate the value of the services and aggregate demand.

Optimised network operations

Service providers must pay particular focus on four key areas when it comes to optimising their networks for low average revenue per users (ARPU). These are network design and rollout; base station equipment and site costs; backhaul and transmission; operational/business support systems (OSS and BSS).

When designing network coverage for low ARPU areas, operators must take the opposite approach to what is happening in mature markets, where switching at the edge of the network is shifting towards the core, partly because backhaul is becoming cheap and plentiful. In low ARPU markets, the first principle is to have as few cell sites as possible. Each additional site generates incremental costs for equipment, site, security, transmission and power. More importantly, service provides must adopt distributed network architectures, with base station clustering, and local call switching.

Price to optimise network utilisation

Operators must price their services to ensure optimum network utilisation and profitability, in the same way that budget airlines generate their profits by ensuring higher aircraft utilisation. The research suggests service providers should consider dealer commissions another important lever in optimising subscriber acquisition and retention costs to ensure low ARPU customers remain profitable.

Some emerging market operators in Asia and Africa have managed to reduce their dealer commissions to $1, and even to agree that commissions would not be paid if the subscriber left the network within a certain period. This is an approach that operators need to consider for the next wave of low ARPU users, particularly those based in remote rural areas.

Effective distribution

An effective local distribution network is one of the most critical components of a service provider's marketing efforts for low ARPU users.

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