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[liberationtech] Steve Song on the Danger of Private Incentives

Kevin Donovan kdonovan11 at
Tue Feb 22 08:49:06 PST 2011

*Apropos of Gurstein's worries from a bit back.*


*Safaricom – A Modest Proposal*

By Steve Song, on February 22nd, 2011

In April of the last year, Indian telecoms giant
*Zain* <>‘s mobile operations
across 16 countries in Africa.  But it was in Kenya that Airtel decided to
launch its first competitive offensive in August of last year, slashing
mobile costs by up to 70%.  Safaricom held out for a couple of weeks but
ultimately was obliged to follow suit.

Well here we are 6 months later and how have things turned out?  If you read
the *Balancing Act this
would have seen an interview with
*Safaricom* <> CEO, Bob Collymore, in which he
talks about the mobile price war in Kenya.  The paragraph that leapt out at
me immediately was this one:

*”We have 77% of the market by subscriber numbers. Our ARPU is higher than
anyone else’s. But 77% market share is not sustainable. We do have
“significant market power” but we feel that’s because everyone else was very
incompetent. There was no consistent management at the number two operator.
**We’re OK with losing market share (faced with unrealistically low rates)
and focusing on Nairobi and high-income communities. The people in remote
districts are receiving calls (more than making them). If rates decline, why
should I continue to do that?**” [emphasis added]*

I had to sit down and digest this for a minute. Bob Collymore is threatening
to neglect rural areas if the regulator doesn’t do something to force prices
up.  I am speechless that he can casually say this sort of thing and get
away without massive public outcry or government censure.  Let’s go over a
few facts.

First Safaricom. This is a company that for the last few years has been
making nearly 50% gross profit on their business. Heaven forfend that they
should have to lose any of that revenue.   They command 77% of the mobile
market and 92% of the Internet market.  They argue that this is due to the
incompetence of their competitors which is partly true but largely
disingenuous as beyond a certain size, *network
effects*<>have helped to
entrench their market position.

Now Kenya.  In spite of being a pretty amazing country in general and in
spite of the incredible mobile/Internet buzz in Nairobi at the moment, this
is a country of enormous economic disparities where *roughly 50% of the
country’s population*<>falls
under the poverty line, meaning they earn 20USD per month or less.
 Eighty percent of the population live in rural areas and that includes *three
out of four poor
 We know from *ResearchICTAfrica*<>‘s
research that, as of 2008, within the bottom 75% percentage of earners,
Kenyans are spending more than *25% of their TOTAL
mobile services.  Now that’s only USD5 per month but if you’re earning
USD20 per month that’s a pretty big deal.  Almost unbelievable.  Now think
of the impact that the recent price drops have had on the rural poor.  A 70%
price drop means getting back a pretty big chunk of your income.

But not if Bob Collymore has his way.  He wants prices up or he’ll let rural
access atrophy.

*A Modest Proposal*

I have a modest proposal for Safaricom.  If they are not prepared to service
rural areas, let someone else do it.  Allow entrepreneurs access to GSM
spectrum in rural areas if they can make a viable case for service delivery.
 In this case, I am thinking of *Range
makers of *OpenBTS* <>, a low-cost, open
source, GSM basestation.  Give Range Networks a chance to build a rural
network in one of those areas you’re not so interested in anymore and
perhaps allow a beautiful partnership to emerge.  You have little to lose if
they fail but if they succeed, you have a network busy sending you minutes
and paying to sub-let spectrum from you.

Naturally I also encourage entrepreneurs to explore the use of unlicensed
spectrum as well.  My own social enterprise, the *Village
produces low-cost mesh WiFi devices (Mesh Potatoes) that can be used to
establish a telephone/Internet network anywhere.  I wrote a post over at *
at the similarities and differences between the two projects.

Both OpenBTS and the Village Telco are built on the premise that anyone with
the energy and expertise to build a telephone network should be allowed to.
 Isn’t that the way it should be?

Addendum:  I’ve just noticed that Erik Hersman has been *struck by the same
quotation from Bob
has been kind enough to write about the Village Telco.

Kevin Donovan
Georgetown '11: SFS
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