Telecoms Hungry for Next Billion Callers

Emerging markets look like the best bet for the next wave of wireless customers, according to talk at ITU Telecom World in Hong Kong

One of the big topics discussed at this week's ITU Telecom World 2006 forum in Hong Kong has been how to narrow the digital divide by connecting people in poorer countries to the Internet. The estimated 1 billion Internet users and 2 billion-plus mobile phone subscribers worldwide are mostly clustered in wealthier markets. Now telecom and IT executives are on a quest for "the next billion," and that growth is expected to come primarily from developing markets.

Why focus on emerging markets? After all, most customers in those countries can't afford the fancy phones that drive up average selling prices. But already a majority of the industry's telecom connections come from developing markets. By the end of the decade the number will increase to 69%, according to market research firm Gartner (IT).

And customers in the developing world are willing to spend a larger percentage of their disposable income on communications, Gartner says. "The hunger for improved connections is strong," says Jouni Forsman, a Gartner research director, via a press release. "The high level of disposable income being spent on communications in developing countries today is clear evidence that the telecoms industry is mission critical in the emerging world."

Making Customers for Life

Paul Jacobs, CEO of Qualcomm (QCOM), argues that one reason these markets are so crucial is they represent an investment in the future. His company has been helping partners in India launch mobile phones using Qualcomm's CDMA standard that cost under $30.

There's not a lot of profit for Qualcomm in such a phone, but Jacobs argues that customers who buy such basic products now will be able to buy fancier stuff later. "We don't think we're going to make a lot of money on the first phone that somebody buys," he says. "But eventually [that customer] will buy more and more."

As companies increasingly focus on emerging markets, there are other benefits. Jacobs, for instance, argues there's a lot of innovation that comes from focusing on developing inexpensive products for emerging markets. "It used to be that you would invest in the high-end services and they would trickle down," says Jacobs. "Now we invest equally in the low end and high end and things trickle to the middle."

Breaking the Literacy Barrier

Motorola (MOT) also boasts that focusing on emerging markets results in innovation. For instance, in late November, Motorola launched the Motofone—a $30 handset designed in India—with rural users in mind. For many, it will be their first-ever phone, and Motorola's designers have included features designed to meet those special needs.

One example: The phone has a speaker that can give audio instructions to the user, rather than presenting them in text form. The reason, explains Thomas Quirke, a marketing director for Motorola, is to break down a barrier that wouldn't occur to engineers designing products for other, more developed markets. "The phone makes the presumption that you may not be literate," he says.

The Motofone's designers also have thought about how to meet the needs of consumers in places where electricity is not cheap or reliable. For instance, the handset has a reflective display that people can easily see when outdoors, rather than the traditional back-light of an LCD display that consumes a lot of power. For easier viewing, the Motofone's display also can switch from black-on-white to white-on-black. And since power supply in the countryside is not always reliable or plentiful, the phone has a battery with a stand-by time of two weeks.

Watching Copper Prices

Whether you're talking about spiffy new handsets or more conventional phones or PCs, a big question for next-billion advocates is how to connect these devices to the networks. Many people attending ITU argue that the answer should be wireless.

China's soaring demand for commodities has translated into high prices for metals and, some advocates of wireless argue, that means emerging-market countries looking to connect more people to the Net should use technology that doesn't require a lot of expensive materials to be put in the ground.

The price of copper has gone up threefold in the last few years, says Ray Weber of Motorola, while the cost of WiMAX technology has fallen. WiMAX (short for Worldwide Interoperability for Microwave Access) can deliver high data speeds and transmit signals over a much bigger coverage area than existing wireless technologies, and supporters argue it could be a cost-effective way to reach developing-world consumers.

"The deployment costs of doing wireline are very high today, given the high price of commodities," he says. Moreover, the high price of copper has made all sorts of things that use the metal—including telecom equipment—a target for thieves who can sell it to others. "If copper goes into the ground, it might just get dug up again," adds Motorola's Quirke.

Making Connections

Companies such as Motorola and Samsung Electronics (SSNGY) make a case for WiMAX as the technology of choice for connecting the next billion to the Internet. Samsung is providing the equipment for WiMAX trials that are now under way in Venezuela and Brazil, and Samsung Vice-President Hwan Woo Chung says the company is talking with operators in Southeast Asia and Eastern Europe about launching WiMAX services, too.

Next year he's hoping to make progress selling the technology in Africa, where he says operators can use WiMAX to provide voice as well as data services to customers who otherwise have no connections.

Hwan argues that WiMAX is better for emerging markets because it's less expensive than alternatives such as the EV-DO technology backed by Qualcomm—"one-third the cost," he says. And, in another dig at Qualcomm, he says that WiMAX is better because, unlike EV-DO, there's no one company that gets the majority of the royalty payments. That reduces the burden for operators in emerging markets. "One particular company is not governing the IPR," says Hwan, referring to intellectual property rights, "so the overall royalty payments are very small."