Archive for March, 2012

New Frontiers in the Developing Digital World

Wednesday, March 21st, 2012

As a consulting company, innovation, technology, strategy and business models are all areas that are ingrained in our DNA. The impact of these capabilities to shape human behavior, expectations and life styles and the virtuous impact of these elements on national and global GDP is a fascination that has translated into our study of the digital world and digital life.

A Journey of Learning

Consequently we are always looking for stories that exemplify and support our frameworks and models. One of these models we codified nearly 4 years ago and submitted in a paper presented at the ITU Telecom World in 2009. An in-depth review of historic technology development showed that for a new technology industry to grow rapidly three components need to be in place and working together in unison. These component pieces are:

  • Technology that is ready and deployable
  • Business model that is appropriate
  • Consumer requirement that is real

The paper “Digital Life Impacts on Telecom’s And Consumers” (available to download on our website) focused on the impact of converged technologies and how this would translate into a rapid explosion of consumer demand for data services with the emergence of the mobile internet.

Two weeks ago I attended Mobile World Congress 2012 in Barcelona and listened with interest to Sunil Mittal, Chairman and Managing Director for Bharti Airtel, describe the growth of mobile technology in India. What fascinated me about his story was the recognition that a proven business model has to change according to the market context when both the technology and consumer demand are there, and his story linked all this together in a very powerful way.

Compelling Story

Mittal’s story started in 1992 inIndia when the government auctioned the new GSM spectrum, and Bharti Airtel was awarded a license. In their own words, they were entrepreneurs at this time with more aspiration than resources. Nonetheless, over the next 5 years they built a subscriber base of nearly 5m users. In 1998 they set their sights on achieving a subscriber base of 25m and looked at 5 companies, 3 in Europe and 2 in the U.S., which had already achieved this number. They concluded that they had to grow their resource base to almost 15,000 people in order to support 25m subscribers, and to achieve this growth a new business model was needed to replace the traditional way of creating a network; the inspiration for this came from the energy market.

To help achieve this growth, IBM was awarded a $1 billion IT outsourcing contract for everything from desktops to billing to data warehousing, and Erikson and Nokia were awarded a managed service contract with 1,100 engineers. Additionally, the traditional procurement model was changed from one of buying hardware and boxes to one of traffic. Airtel decided that they would pay for utilization of the network measured in Erlangs, in other words when users made calls. The net result of this was that their subscriber base grew from 5 million to 25 million subscribers in 24 months. In partnership with the GSMA, the Indian mobile operator also managed to convince the world wide industry of manufacturers to focus on building sub $50 handsets. So with a network that was scalable and handsets that were affordable, the pent up consumer demand was met, and as a result the market in India grew phenomenally. There are now over 600 million handsets in use in India today, 200 million of the subscribers being provided by Bharti Airtel. They have exported their business model to 17 other countries with a further 15 million subscribers.

Significant Question

After telling his story, Sunil posed the question: what new business model could encourage mobile broadband deployment and enable mobile banking and mobile health to affect a life changing impact on developing economies? As he identified,India has few ATMs but there are 600 million mobile handsets which could easily become mobile ATMs for mobile banking. Equally, in countries such as Africa and India, where the primary healthcare system is either non existent or broken, mobile health can be significantly aided by the implementation of low cost mobile broadband. Compound this with expanding education through mobile education services facilitated by sub $50 tablets and you have the opportunity for growing entrepreneurs, aiding society and promoting economic growth within these emerging economies.

The Future

So the scene is set: the technologies are present, consumer demand is pent up and entrepreneurs are eager to find the right business model.  A lack of incumbent providers in the emerging markets leaves the field wide open for entrepreneurs to leapfrog into different areas. For example, mobile banking can facilitate the development of small businesses and grow the GDP as well as change funding models through the growth of peer to peer lending. In the developed world, however, where governments want to be the sole provider of currencies, and banks, credit card companies and mobile operators want to own the revenue stream of mobile banking, the challenge for shifting the business model is significantly greater. In a twist of fate, the developed world may be looking to the developing world for the new business models that are going to shape our global economy over the next 5 years.

Steve Bell, President, KeySo Global