Poverty and Mobile Telephony in Latin America and the Caribbean
Mobile Opportunities:
Poverty and Mobile Telephony in Latin America and the Caribbean Hernรกn Galperin Judith Mariscal DIRSI
November 2007
Poverty and Mobile Telephony in Latin America and the Caribbean
Mobile Opportunities:
Poverty and Mobile Telephony in Latin America and the Caribbean Hernรกn Galperin Judith Mariscal DIRSI
November 2007 This work was carried out with the financial support from a grant given to the Instituto de Estudios Peruanos (IEP) from the International Development Research Centre, Ottawa, Canada.
Abstract
Access to telephony for low-income groups is largely based on different strategies of mobile telephony usage. The main goal of this research project is to explore the strategies employed by the poor in Latin America and the Caribbean to access and use mobile telephony services, as well as to identify the major market and regulatory barriers for increased penetration and usage. More generally, it seeks to contribute to the discussion on how access to mobile telephony contributes to improving the livelihoods of the poor –what we call mobile opportunities. Our results show that mobile telephony is highly valued by the poor as a tool for strengthening social ties and for increased personal security, and that it is beginning to prove useful for enhancing business and employment opportunities. Overall, the survey results suggest that the acquisition of mobile phones by the poor has an economic impact reflected mainly in improved social capital variables such as the strengthening of trust networks and better coordination of informal job markets. These findings reveal the continued need to develop innovative business models that extend the market frontier for mobile telephony. They also highlight the urgent need to rethink public policies that are premised on the mobile phone as a luxury good. Clearly, for the poor, mobile telephony has long been the most cost-effective and accessible alternative. We acknowledge the valuable support of Andrea Molinari and Fernando RamĂrez in the research process. We would also like to thank the team leaders who carried out research in each country: Antonio Botelho (Brazil), Luis GutiĂŠrrez (Colombia), Hopeton Dunn (Jamaica), Roxana Barrantes (Peru), and Kim Mallalieu (Trinidad and Tobago).
Poverty and Mobile Telephony in Latin America and the Caribbean
Introduction
Access to communication services and to telephony in particular has long been recognized as an important development input. In Latin America and the Caribbean, telephony penetration has grown exponentially in recent years, driven to a significant degree by mobile services. This has been particularly relevant for the poor, who for a variety of reasons have had limited access to traditional fixed telephony services. For those at the bottom of the income pyramid, access to telephony is largely based on different strategies for using mobile telephony. Yet empirical studies aimed at understanding the patterns of mobile phone use by the poor, and of communication services in general, are rare. The main goal of this research project is to understand the strategies employed by the poor in Latin America and the Caribbean to access and use mobile telephony services, as well as to identify the major market and regulatory barriers for increased penetration and usage. The project also attempts to analyze the untapped commercial and public policy opportunities associated with increased mobile penetration among low-income groups (the so-called bottom of the pyramid). More generally, it seeks to contribute to the discussion on how access to mobile telephony contributes to improving the livelihoods of the poor –what we call mobile opportunities.
Methodology
Over 7,000 face-to-face interviews were conducted with individuals aged 13 to 70 residing in lowincome households in the following countries: Argentina, Brazil, Colombia, Jamaica, Mexico, Peru, and Trinidad and Tobago. A probabilistic sample was drawn using maps from existing georeferenced data provided by the national statistics office of each country. Individual respondents were randomly selected from each household. The goal was to obtain a representative (and statistically independent) sample of lowincome residents of urban areas in each country, although in one case (Jamaica), semi-rural areas were also included. Fieldwork was conducted between April and June 2007.
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Key results
Our results show that the exponential growth in the mobile telephony market in Latin America and the Caribbean has had a significant impact on telephony access opportunities for the poor. With the exception of Mexico, the majority of respondents in the countries studied had used a mobile phone in the past three months, regardless of whether or not they actually owned one (see Figure 1). Interestingly, the level of shared ownership was relatively low: in most cases, users own their own handset and service. The notable exceptions are Colombia and Peru, where a healthy service resale market in urban areas (with very competitive tariffs) reduces ownership incentives.
Figure 2 Prepaid plans (% of total)
Figure 1 Mobile usage and ownership (% of total)
Colombia
Colombia
37
Brazil Mexico
30 0
Owners
20
42 37 40
Brazil
96
T&T
96
Peru
96 92
Mexico
90
61 60
86 83
70
53
60
74 0
94 90 89
63
T&T
Peru
98
Argentina
Jamaica
Argentina
Jamaica
80
100
Users
Our results also confirm the importance of prepaid service models for a population with fluctuating incomes and limited insertion in the formal economy. Overall, low-income mobile users prefer prepaid plans (see Figure 2). However, in a developed mobile telephony market like Argentina, the solid performance of mixed plans (which combine a low fixed monthly fee with top-ups for extra credit) illustrate the potential of commercial innovations specifically targeting the poor.
20
40
60
80
100
This preference for prepaid plans is based on two factors, as illustrated in Figure 3. The main motive is spending control: users value the ability to purchase credit when they have cash in hand, rather than committing to a fixed monthly charge. The other factor is cost: users perceive prepaid plans to be cheaper than post-paid plans. This counterintuitive result must be interpreted carefully. On the one hand, there seems to be information problems that prevent users from making accurate comparisons of per-minute costs between prepaid and post-paid plans. On the other hand, users are simply referring to total monthly costs based on their particular usage basket, which tends to be well below the post-paid service packages offered by the operators. Figure 3 Reasons for opting for prepaid mobile service (in %) T&T
61
29
Brazil
52
38
Argentina
47
35
Mexico
46
26
Colombia
41
31
Jamaica
41
32
Peru 0
10
20
30
34 33
I can control my mobile spending better
40
50
It is cheaper
60
70
5
Poverty and Mobile Telephony in Latin America and the Caribbean
Interestingly, most users think mobile services are neither cheap nor expensive, although the percentage of users who consider the service expensive tends to be higher in markets with lower ownership rates, such as Mexico, Peru and most notably, Brazil (see Figure 4). Figure 4 Mobile service cost perception (in %) 18
Argentina
68
14
T&T
26
57
17
Peru
10
Colombia Mexico
35
21
51
28
38
16
Jamaica
31
Brazil
55
45
34 35 54
34
12
30 0 20 40 50 10 Very cheap or cheap Neither cheap nor expensive Expensive or very expensive
60
70
80
For the poor, service affordability remains a key barrier for increased adoption of basic as do value-added services. This is confirmed by responses from non-users, who cite cost as the main reason for non-adoption of mobile telephony, as shown in Figure 5. Figure 5 Reasons for not owning a mobile phone (in %)
Mexico
56
20
Peru
56
28
Brazil
52
32
Jamaica
49
23
Argentina
46
32
T&T
40
34
Colombia
38
21 0
10
20
30
40
I don’t think having a mobile of my own is necessary
50 I can’t afford it
60
Overall, we find that the poor highly value mobile services. This is not surprising given the lack of alternatives, particularly traditional fixed telephony services. Most respondents are willing to spend significant amounts on handsets, with averages ranging from USD 53 in Peru to USD 68 in Argentina. In fact, our results show that the informal market for second-hand handsets is relatively small (see Figure 6). Rather, the real driver of increased adoption is the trickle-down effect of handset replacement from the top of the income pyramid: in the more developed markets such as Argentina, over a third of respondents had obtained handsets as a gift from an acquaintance or family member. Figure 6 Owners who bought a new handset (in %) Jamaica
98
T&T
97
Peru
86
Mexico
86
Argentina
80
Brazil
76 0
20
40
60
80
30 25
25
22 17
20 15 10
13
10
7
11
10
7
5 0
7
5
T & T Jamaica Colombia Brazil Argentina Average
7 5
Peru
5
Mexico
Median
A surprising result is that the number of incoming calls is only slightly higher than that of outgoing calls, with the sole exception of Jamaica. Contrary to the common perception that poor users receive many calls but make very few, we find that volumes of incoming and outgoing calls tend to be closely related, as Figure 8 demonstrates. Figure 8 Incoming calls over total calls (in %)
83
Colombia
Figure 7 Total outgoing calls per week (average and median)
Jamaica 100
It is well known that existing tariff levels, combined with the calling party pays (CPP) system, lead low-income users to limit use of mobile phones for outgoing calls. Our results show that most users in Latin America average less than one call per day (see medians in Figure 7), whereas outgoing call levels are higher in Caribbean countries, where tariffs are more affordable. These results also explain the preference for prepaid plans, since most operators do not offer fixed-rate plans for such low volumes of outgoing calls.
67
Peru
55
T&T
55
Argentina
52
Colombia
51
Mexico
50
Brazil
50 0
10
20
30
40
50
60
70
80
In addition to making a very limited number of outgoing calls, the poor utilize other cost-control strategies that involve so-called ‘beeping,’ or simply not making outgoing calls for a period of time. In fact, in most of the countries studied, over a third of respondents had not made a single outgoing call in the week preceding the survey (see Figure 9).
Poverty and Mobile Telephony in Latin America and the Caribbean
Figure 9 Most common cost-reduction strategies (% of users) 70 50
50 40 30 20
33
61
57
57
60
51 47
44 32
25
23 21
16
26
10 0
Argentina Brazil Colombia Jamaica Mexico
Only used the mobile to receive calls
Peru
T&T
Beeping
Our results reveal that the poor represent a significant market for mobile operators, with higher than expected average per capita expenditure. As shown in Figure 10, average monthly spending on mobile telephony services in Latin America ranges from USD 6.1 in Colombia to USD 15.7 in Mexico, while in Caribbean nations expenditure levels are considerably higher. Figure 10 Average monthly spending on mobile telephony (USD) 18 16
16
14
12
12
11
10 8 6
7
6
Peru
Colombia
4 2 0
Mexico
Brazil Argentina
7
While accurate income data are difficult to obtain in this Figure 12 type of survey, our estimates reveal that average spending If the cost of using a mobile phone were halved‌ (in %) on mobile telephony as a percentage of income ranges from 3.2% in Brazil to 6.3% in Argentina, however, in some cases, 84 users may spend well above 10% of their monthly income Brazil on mobile telephony services. We also found that demand Argentina 83 for mobile services at the bottom of the pyramid appears to 83 Mexico be rather inelastic with respect to tariff variations, although 82 Peru price elasticity tends to rise with income levels. In general, poor users highly value the few calls they make or receive and Colombia 78 would not significantly change usage patterns in the event of 77 T&T price increases. However, for some users, there appears to be 41 a threshold point after which they would simply stop using Jamaica 90 0 10 20 30 40 50 60 70 80 their mobile phones (see Figure 11). I would increase my phone usage
Figure 11 If the cost of using a mobile phone doubled‌ (in %) T&T
9
Argentina
34
9
Mexico Brazil
23 24
8
Jamaica
16 0
5
10
Figure 13 If your income doubled‌ (in %)
21
9
Colombia
29
22
11
Peru
Although lower than expected, income elasticity of mobile telephony usage also appears significant in some cases, such as in Peru (see Figure 13).
36
15
I would not change my phone usage
20
68
Peru
20 25
30
35
40
I would stop using my phone
47
Colombia Jamaica
43
Brazil
42
Argentina
At the same time, our results confirm that current tariff levels represent a significant deterrent to use: most users would significantly increase their consumption of mobile telephony services if the costs were reduced, as shown in Figure 12.
37 34
T&T 30
Mexico 0
10
20
30
40
50
60
70
80
I would increase my phone usage
Meanwhile, despite increased adoption, users are not taking full advantage of the services enabled by the mobile platform. Text messaging (SMS) is the only service beyond voice that is rapidly being adopted across the region. In the
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Poverty and Mobile Telephony in Latin America and the Caribbean
more developed markets such as Jamaica and Argentina, the large majority of low-income mobile phone users have used SMS services. However, factors such as literacy levels seem to have deterred adoption in other countries, notably Brazil (see Figure 14). Figure 14 SMS use among mobile phone users (in %)
Argentina
91
Jamaica
67
Mexico
53
T&T
46
Peru
45
Colombia
44
Brazil
36 0
10
20
30
40
50
60
70
80
90
100
As shown in Figure 15, the main reason mentioned for not using SMS services is lack of knowledge, which is not surprising given that most respondents are relatively new users (two years or less). In fact, our results suggest that adoption of services beyond voice increases over time, as users advance along the technological learning curve. Figure 15 Main reason for not using SMS services
57
T&T 53
Peru 42
Jamaica Mexico
39
Brazil
38 37
Argentina 34
Colombia 0
10
I don’t know how to use SMS
20
30
40
50
60
In most markets, the current structure of tariffs creates incentives for intensive use of SMS as a cost-control strategy. As shown in Figure 16, the volume of SMS usage is significantly higher than the volume of voice calls, particularly in markets with high SMS adoption rates, such as Argentina.
Figure 17 Destination of outgoing calls (in %) 100 80 60
Figure 16 Total outgoing SMS per week (average and median)
40 20
40 35
0
33
30 25 20
Workplace
26 20 14
15
8
10
13 10
9
Friends
Peru
Relatives in the country
T&T Others
8
8 5
5
5
Argentina Mexico T & T Jamaica Peru Colombia Brazil Average
Colombia Mexico
Figure 18 Origin of incoming calls (in %) 4
5 0
Argentina Brazil
Median
Aside from text messaging and voice services, low-income users make little use of mobile telephony services. In the more developed mobile markets such as Jamaica and Trinidad and Tobago, there is some usage related to downloading ringtones and participating in radio/TV games, but the use of more sophisticated services such as banking and government services is practically non-existent. This represents an interesting opportunity for the delivery of information and transaction services by the government as well as market actors, given the relatively high level of penetration of this transaction platform among the poor. As mentioned, the main perceived benefit of mobile use among the poor is improved communication with family and friends. This is consistent with the fact that most mobile calls are made to or received from friends and family, followed by work-related calls, as illustrated by Figures 17 and 18.
100 80 60 40 20 0
Argentina Brazil Workplace
Friends
Colombia Mexico
Peru
Relatives in the country
T&T Others
In other words, as illustrated by Figure 19, the main value associated with mobile phones is the strengthening of existing ties, although increased personal security (in emergencies, for example) is also frequently mentioned as a major benefit. Increased business opportunities also appear to be an important factor, particularly for longerterm users. In the case of Mexico and Peru, it is interesting to note that those who use mobile phones for work-related reasons tend to have higher call volumes. Overall, our results suggest that the economic impact of mobile adoption by the poor is mediated by social capital variables such as the strengthening of trust networks and improved coordination of informal job markets.
Poverty and Mobile Telephony in Latin America and the Caribbean
Figure 19 Perceived benefits associated with mobile use (in %)
Brazil
Argentina
54
Family
71
Family
Friends
69
Friends
45
Emergencies
46
47
Emergencies
43
Work
0
20
40
0
80
60 65
Family
42
Friends
37
Emergencies
20
40
65
Friends
64
60
20
40
60
80
52
Family
30
Friends
40
Emergencies
14
Emergencies
27
26
Work
40
60
80
Trinidad and Tobago Family
73
Friends
73 56
Emergencies
49
Work
20
38 0
80
29
0
44
Work
48
20
80
Peru
Family
0
60
Family
Mexico
Work
40
Emergencies
43
Work
Friends
20
Jamaica
Colombia
0
31
Work
40
60
80
0
20
40
60
80
11
Finally, our results revealed that beyond mobile networks, the poor have limited access to other communication platforms (see Figure 20). With the notable exception of Colombia, most respondents lack fixed telephony services in their homes, confirming the unequal distribution of traditional fixed networks as compared with new mobile telephony networks. Figure 20 Mobile and fixed telephony ownership (in %) 100 90
96
96
87
81
80
80 70
70 60 50 40
37
30
43 31
38
63
62
39 15
20 10 0
T & T Jamaica Argentina Brazil Mobile owners
Mexico Colombia Peru
Fixed owners
A similar pattern is found with respect to internet access. With the exception of Peru, the poor seem relatively uninterested in the internet, although usage tends to rise among the younger population. Interestingly, the factors that explain the lack of internet usage by the poor are only partly related to affordability or infrastructure availability, since in most urban areas access is widespread via public internet centres (such as cyber cafĂŠs), which offer relatively inexpensive hourly access (at least compared with perminute mobile tariffs). Our results reveal that the poor simply perceive no benefit in using the internet, with the exception of a small percentage of youth who consider it useful for school purposes and for keeping in touch with friends. This represents a red flag for policymakers who promote universal access policies and who frequently focus on internet/PC shared-access programs. For the poor, the mobile phone has become a much more important and familiar platform than the internet.
Poverty and Mobile Telephony in Latin America and the Caribbean
Our results also show that public phones –often overshadowed by other priorities in universal access programs such as telecentres– continue to play a significant role for the poor, often as a complement to mobile services (see Figure 21). Cost, convenience and simply the lack of other options are the reasons most often mentioned by the poor for the continued use of public phones (see Figure 22), despite the increased availability of and access to mobile telephony. Figure 21 Use of public telephony in the last month (in %)
Peru
70
33
Brazil
64
3
Mexico
55
6
Colombia
49
33 33
Argentina T&T
3 0
46
9 10
20
30
40
50
60
70
80
Public telephones or non-specialized commercial establishments Commercial establishments specialized in telephone service
Figure 22 Reason for using a public payphone (in %) 100 80 60 40 20 0
Argentina
Brazil
Colombia
Lower cost
Easy access
Mexico
Privacy
Peru
Lack of other options
T&T Other
13
Poverty and Mobile Telephony in Latin America and the Caribbean
Conclusion
The goal of this report was to contribute to the discussion on how access to mobile telephony contributes to improving the livelihoods of the poor in Latin America and the Caribbean –what we call mobile opportunities. Our results show that mobile telephony is highly valued by the poor as a tool for strengthening social ties and for increased personal security, and that it is beginning to prove useful for enhancing business and employment opportunities. Overall, the survey results suggest that the acquisition of mobile phones by the poor has an economic impact reflected mainly in improved social capital variables such as the strengthening of trust networks and better coordination of informal job markets. Given their limited access to traditional fixed telephony, the poor attribute a significant improvement in quality of life to mobile access. Demand for mobile services at the bottom of the income pyramid appears to be rather inelastic with respect to tariff variations. The significant level of expenditure on mobile handsets and services found among these low-income populations is also consistent with the numerous benefits perceived by users. Nonetheless, there are still barriers that discourage the poor from acquiring mobile phones. In countries like Mexico, Brazil and Peru, a majority of the poor still cannot afford a mobile phone, although many rely on informal resellers and family or friends to make or receive calls. Those who can afford their own mobile phone make little use of voice and other services, tightly controlling their expenditure and frequently relying on public payphones for outgoing calls. These findings reveal the continued need to develop innovative business models that extend the market frontier for mobile telephony. They also highlight the urgent need to rethink public policies that are premised on the mobile phone as a luxury good. For the poor, mobile telephony has long been the most cost-effective and accessible alternative.
Since affordability is the most significant barrier to extending the reach of mobile services, as well as the range of services offered to the poor, priority should be placed on policies aimed at reducing tariffs. Enhancing competition through increased spectrum allocation, reducing taxation levels, and implementing number portability are among the initiatives worth considering. Tariff reductions need not penalize operators. Our results show ample room for win-win initiatives that increase overall traffic and create new commercial opportunities for operators and third-party service providers, ranging from simple information to more complex transaction services. Along these lines, our results also reveal that users are rarely taking full advantage of the services offered by the mobile platform. Text messaging is the only service beyond voice that is rapidly being adopted. Many of the applications that could most benefit the poor, such as m-banking and m-government, are still in their infancy in the region. Taking advantage of the poverty-reduction opportunities created by the widespread adoption of mobile phones among the poor will require a concerted effort between market actors and governments. As users advance along the technological learning curve, and handset prices continue to drop, these mobile opportunities should continue to increase.
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Contact information: Hernรกn Galperin hgalperin@udesa.edu.ar Judith Mariscal judith.mariscal@cide.edu info@dirsi.net www.dirsi.net Editing: Kristin Keenan Layout: Carlos Abril Photographs: Aldo Arozena / Kim Mallalieu