The Future of Voice: Overlooking the Market for Low-Income People in Developing Countries

1. Voice is Not ReplaceableNever Ignore Market Segment for Low-Income Peopleor Telecommunication Maket in Developing Countries Loso Judijanto Ministry of Communication and Information Technology loso@depkominfo.go.id losoj@indo.net.id ITU Workshop “The Future of Voice” Geneva, Switzerland, 15-16 January 2007

2. Outline of Presentation • Common Perception • Voice is Still Killer Application • Leading Players Tend to Overlook Voice Market • Voice Market for Low-Income People • Typical Market Segment Comparison: Case of Indonesia • Requirements • Concerted Efforts of Government/Regulator, Technology Vendors, and Telecommunications Operators • Concluding Remarks

3. COMMON PERCEPTION • There are some common perception in this rapidly changing telecommunications environment: • User preferences are changing from voice to non-voice services • There is no longer place for voice services • Multiple-play services are needed by all consumers • Such perceptions imply thoughts that: • Telecommunications operators have to offer multiple-play services • Consumers will buy in and pay any kind of new telecommunications services • There is no market for low-income people as they will not able to afford such multiple-play services • Telecommunications operators focus on ARPU rather than total revenue and profit margin • They may be arguable in developed economies, but may mislead in low-income segment or in developing economies when affordability is the main concern.

4. VOICE IS STILL THE KILLER APPLICATION: THERE ALWAYS BE A MARKET FOR VOICE • Voice basically tends to be mature-market but remains the bread and butter of telecommunication services (especially of the mobile business). • Voice is still the killer application as typically still represents 80% of operators revenue and hence still the most valuable form of communication. • By 2008, global voice business market will be worth USD 3.1 billion and the continuing growth will be fueled by the expansion services to currently underserved and unserved markets (Business Insights, 2006). • Globally, voice minutes will reach 16 trillion minutes in 2015 or about 11 minutes per day for each of the world’s 4 billion people (Pyramid Research, 2006). • Voice will continue to be central to success for: • Dominant operators that establish and maintain high volume and low-cost position • Niche service providers that serve specific targeted consumers (low-income consumers) with innovative voice pricing strategy coupled with the most appropriate distribution networks.

5. Leading Players Overlook Voice Market • While the consumption remains strong, as there are additional services offered, voice revenue share is decreasing in the total revenues. • Most people use their mobile phone to make simple telephone calls. • Unfortunately, telecommunications leading players overlook voice market and tend to move to the most advanced services which may not necessary in need by their consumers. • They think that competition in voice is now based only on price and voice become a commodity and then give no strategic attention to additional services. • The fact is that there are still untapped potential market – and the keys are to understand the market penetration, to find the segment, and then to innovate to serve such identified markets. • Not only the price that matters, flexible service quality, mobility, ease of use, and unbundled service offering have to be considered to serve the market.

6. Subscriber Traffic in Mobile Access Networks Projection Terabyte Source: Informa Telecoms & Media, Telephia, Ericsson, 2006 • Indeed, there are more services other than voices available due to advancement technology, but voice service is not negligible in aggregate. • The key is to find the segments where voices are more needed.

7. Is there market for low-income people? • It is the fact that about 4 billion population living with less than USD 1,500 per annum • In Indonesia, about 60 million people (25% of population) living with less than USD 2 per day • In Indonesia, there are about 43,000 villages (66%) still need to get basic telecommunication access • Contrary to the common perception, it is telecommunication market!

8. Constitutionally, they all have rights to communicate and hence they must be served responsibly!Do they really need rich-featured telecommunication services?

9. Widely-shared Orthodoxies that Must be Re-examined • We have identified the following as widely shared orthodoxies that must be reexamined (C.K. Prahalad): • Assumption #1 The poor are not target consumers because with current cost structures, it can not be profitable competing in that market. • Assumption #2 The poor can not afford and will not use the products and services sold in developed markets. • Assumption #3 The poor can not appreciate and will not pay for new technology and just happy to use the previous generation of technology. • Assumption #4 The low income consumers are not important to the long-term viability of business and hence should be left to governments and nonprofits. • Assumption #5 Managers are not excited by business challenges that have a humanitarian dimension. • Assumption #6 It is hard to find talented managers who want to work at the low-income population. • In fact such assumptions may not necessarily true.

10. Fortune at the Bottom of Pyramid (C.K. Prahalad) • It is about finding ways to efficiently address sub-economic markets; how to sell goods and services to the poor for mutual benefit. • Millions of small sales can, in aggregate, add up to big revenue and hence profits. • If we can break the economic and physical bottlenecks of distribution, a huge and previously neglected market can be reached. • As sustainability of the market is the key issue, the use of telecommunications for productive use should be socialized as part of responsibility to the hard-earned money to pay the bill.

11. Typical Mobile Market Segment in Indonesia Voice is more needed in low-income segment.

12. Total Potential Revenue Comparison in Indonesia There are more untapped potential revenue in low-income segment (which voice is more needed and more affordable)

13. Affordable Services for Each Segment

14. Requirements • It must be found out ways to lower the cost of providing goods and services so that telecommunication services can be offered to them at lower pricepoint while still maintaining margins. • This requires: • low price points (for instance, by serving minimum features needed – voice service is enough in most cases); • minimal marginal costs (for instance by reducing consumables and packaging to the bare minimum); • simplifying services so even non-educated person can deliver them (no need to train distributor, operator, salesperson, etc; • the use of local entrepreneurs and its distributorship (for instance, using cigarette or convenience outlet distribution system to reach people to reduce highly distribution cost of refill voucher, etc).

15. Technology Requirements • Technology that delivers service for wider coverage and higher capacity. Broadband technology is the answer. • Low-cost handsets and payment systems must be designed to work for those who would not normally be able to afford mobile (telecommunications) services. • These markets are served by offering mobile phones which come with only the most basic functions such as voice calls and text. • Service providers have also come up with innovative ways to cater to the needs of the low-end consumer, using the text messageas a virtual prepaid calling card. • Under the electronic system, operators do not have to print vouchers or be involved with distributing them and therefore, they can afford to sell airtime in smaller amount.It might be valid for a shorter number of days, but it is much easier for a subscriber, in particularly to align with their daily cash revenue. Rather than paying USD 5-10, they can pay $1 dollar each time for number amount of minutes.

16. Technology Requirements Thanks to the advancement of broadband technology, there is a full range of broadband technologies to serve such sub-economy markets with requirements: • Performance: • Clear voice communication and broadband wireless access • Lowest cost per minute, per message, and per megabyte • Rapid commercialization and deployment • Lower capital expenditure and operating expenses • Seamless service evolution for future enhancement • Device Availability: • Low-end mobile handsets, fixed wireless terminals • Network Flexibility: • Multiple frequency allocations: 450, 800, 1900 MHz, and other frequencies (such as 2.3, 2.5, 5.8 GHz possible for BWA in the future) • Supported by large industry and supply chain

17. Government, Technology Vendors, and Telecommunication Operators Concerted Efforts • Government, technology vendors, and telecommunication operators must all hands-in-hands do concerted efforts to reach sub-economy market. • Government roles (in Indonesia in this case), among others: • Facilitating supply-side of infrastructure support (such as nation-wide 60,000 kms fiber-optic backbone network connecting 440 districts) • Promoting infrastructure sharing to reduce cost of capital • Enacting cost-based interconnection regime to ensure more transparent, efficient, and fair interconnection charging • Deploying USO program to open access and to condition the market to be ready for further commercialization in 43,000 villages within the next 5 years • Developing better frequency spectrum management to support Broadband Wireless Access (BWA) deployment • Leaving door open to technology development for benefits of consumers.

18. Kalimantan Sabang Banda Aceh Sulawesi о Meulaboh Tarakan о Medan Tapaktuan Tobelo о о о Singkawang Maluku Toli-toli Sibolga Manado о o о Batam о Manokwari о о о Padang о Biak Gorontalo Samarinda Pontianak о Natal о o о Balikpapan o о Palu Salawati o о о o Palembang Bengkulu Luwuk о о Palopo o о o о o Kendari Belitung o Nabire o Sampit о о Banjarmasin Jakarta Ambon о Tual Cirebon Ujungpandang Dobo o о Semarang o Kalianda Reo Maumere о Surabaya о Larantuka о Gilimanuk о o o o о о о о о о о о Saumlaki о Kalabahi Sumatera Ketapang Merauke o Karangasem Atambua о Mataram Kupang Papua Waingapu Sumbawa Jawa Nusatenggara PALAPA RING OPTICAL FIBER NETWORKConnecting 33 Provinces, 440 Districts; Capacity 320 G ~ 4 T

19. Government, Technology Vendors, and Telecommunication Operators Concerted Efforts • Technology vendor roles, among others: • Supply the most cost-efficient technology for more competitive cost structure • Support up-grade-ability and scalability of technology deployed to ensure its sustainability • Telecommunication operators roles, among others: • Develop the most efficient pricing and payment mechanism to be affordable by low-income users and to be aligned with their revenue stream • Develop the most efficient distribution system • It is not necessarily that such efforts are always planned since the beginning, but as all parties knows and understands what to do, they all do their homework.

20. Telephone Kiosk to Empower Local People Economy • Attractive business model for local/rural entrepreneurs: • Provide basic telecommunication access • Serve as point of sales of top-up vouchers as well as fixed wireless terminals and low-cost handsets • Possible extension of services to include facsimile, internet connection, and other value added services in the future • Serve as “call center” and after sales service (maintenance and repair of terminals and handsets) • Attractive profit margins between 20% to 30% • Investment cost as low as USD 250 per kiosk and can be repaid back in one year

21. It is the interest of all parties to educate low-income and isolated users for wiser and more productive use of services • It is the interest of all parties, but in particularly telecommunication operators to educate low income consumers on how to use telecommunication more for productive activities. • If they use it unwisely just for pleasure, sooner or later they will use up their hard-earned money and limited resources and hence NO LONGER USE TELECOMMUNICATION SERVICES AGAIN. It means that the market dry up. • Meanwhile if they use it wisely for productive – their wealth increase – more use of telecommunication services – more revenue for telecommunications operator. The logic is simple but it is neglected.

22. What happened in Indonesia (and other developing economies as well) • Telecommunication, in particularly broadband business, is escalating exponentially and thanks to rapid technology advancement. But for whom? • Basically most of all telecommunications equipments (capital expenditures) are imported. All handsets and other necessary equipments are imported. They constitute about USD 2.0 -3.0 billions annually. • The advancement of telecommunication industry become a huge vaccuum cleaner absorbing Indonesia’s (and other developing economies) financial resources and contributing to huge current account deficit. • We do not want to make it continuously happen, and hence we have to think all in more mutual relationship situation.

23. Obligation and Responsibility of MNCs • If MNCs want to really develop business in Asia Pacific, in particularly to serve low-income and isolated users, MNCs have to empower local companies, local partners, local entrepreneurs to be partners in progress • Such partnership and cooperation must be substantial and real, and not just part of marketing or public relations strategy. MNCs must spend large chunk of investment to grow developing economies. • People all tired of cheap talking of partnership if at the end they have to pay all themselves. • Low income people must not be considered as being merely consumers, they are deserved to be part of value added creation in the process. • Consumer education should be part of strategy to empower low income and isolated users to use telecommunications services wisely.

24. CONCLUDING REMARKS • Voice is still not replaceable as naturally-speaking it is a basic human need, and commercially-speaking it is justifiable for currently neglected underserved and un-served low-income segments. • There is great potential voice market for low-income users and they must be served responsibly and carefully designed it is comparably profitable. • Carefully selected and designed, broadband technology advancement helps serve such markets. • Government, technology vendor, and telecommunications operators must exert coordinated efforts to serve their rights for basic voice communications. • It is our responsibility to encourage voice telecommunication services more for productive activities, instead just for leisure. • Let’s grow our cake together and then share the slice together as well.

25. Thank You Loso Judijanto Special Adviser to the Minister Ministry of Communication and Information Technology Republic of Indonesia loso@depkominfo.go.id losoj@indo.net.id Telephone: +62 21 3500 488, +62 811 834757 Facsimile: +62 21 386 5154, +62 21 8898 7019