Village Telco: Low-Cost Community Telephone Network | Market Based Systems Change Case Study

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Village Telco Founded by Stephen Song | South Africa


Executive Summary

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What’s At Stake

4 billion Over half the world’s population - 4 billion people - do not have any access to internet (source:UN)

1:1 Proximity to a communications network has been found to have a direct, 1:1 relationship towards reducing disease (source: Malaria Journal)

Due to the poor telecom infrastructure and high prices for telephone and internet connection in the rural Africa, people are often cut off from communication networks and thus - from access to opportunity, to social and health safety nets, education and information that can improve lives. For example, researchers established that simple proximity to a communication network is directly correlated to a reduction in the probability of dying from malaria. Value continues to accrue to those who can afford access to communication infrastructure while the unconnected fall further and further behind by simply staying in the same place. Telecom operators find it hard to operate profitably at under a few thousand customers on a base station. Communities in Africa that are smaller than this number and whose inhabitants are poorer than in the cities often have to spend 20-30% of their disposable income on telecom only to communicate very little. There is frustration either with the pace of rollout of incumbent telcos or exorbitant telecom prices for rural areas.


Business Model Innovation

In the late 2000’s, Steve Song defined that one of the key reasons for that was a lack of market permeability in the telecom sector in South Africa. The government was not issuing spectrum licences to anyone, effectively closing off access to the wireless telecommunications market. This made it impossible for small local entrepreneurs and communities to enter the market, become a local wireless network operator and enable telephone and internet connection for their peers in the geographic areas where the rollout of telecom infrastructure was lagging.

Initially, the main revenue in the Village Telco model was coming through the sale of hardware, the Mesh Potato device, and making a markup on it. However, Steve had a vision for the evolution of this business model. The goal was to move from being a hardware business to being a services business, and ultimately selling services to the people who bought that hardware, such as cloud-based voice interconnection. His plan was to significantly increase the production of devices by having large manufacturers take over the initiative in production of wifi devices Steve’s innovation with Mesh Potato with voice services and upon it transwas in creating a valuable product and form his own business. Contrary to through it, enabling low-cost telecom Steve’s expectations, none of the large services for the unaddressed market of manufacturers were willing to take the rural African population which has up the Mesh Potato device for mass not yet been of interest for the large tele- production due to considering it a niche com operators. He redesigned an existing product. This left Village Telco on its technological product, wireless access own, with relatively high costs per unit point, to fit the special conditions of poor and without being able to reach the rural telecom infrastructure and needs manufacturing scale to be able to fulfill through equipping it with an analogue the original plan. telephony adapter. Consequently, by enabling people in local communities to “Our mission was to keep the prices take control over the part of the telecom as low as possible to be able to serve supply chain and to use internet and the rural communities,” describes telephony collectively via mesh network Steve. “Quite soon, the writing was and a shared backhaul connection, he on the wall in terms of our own helped these communities to significant- ability to develop a profitable ly decrease the cost of telecom services. model based on hardware sales.”

At a Glance Revenue Model • Grants or contracts • Earned income : product or services sales

Innovation • Unaddressed Market • Pricing • Product Design • Supply Chain


Six years into the business and against the background of quick technological advances, radically cheapened smartphones, with built-in wifi function, it became clear to Steve that the mass production of Mesh Potato will not take off. Moreover, he started seeing the limitations to supporting local communities in only using the licence-exempt spectrum for voice services despite there being others spectrum options as well. He found that the Mesh network is hard to scale and requires a lot of additional infrastructure for connecting beyond 50 or 100 devices. As a result, he realized that the most effective way to offer voice services to underserved population turns out to be through offering traditional mobile GSM services - requiring access to the GSM spectrum instead. However, it was still very hard for a grassroots operator or small scale entrepreneurs to access spectrum and enter the game. “Through Village Telco, we were able explore both the potential and limitations of mesh WiFi networking technology to be a robust telecom infrastructure,” says Steve. As a result of deep immersion into the spectrum topic and based on the experience with his own business, Steve has become aware that actually the barriers

to telecom market permeability these days are mostly not technological, but regulatory. They are limitations of access to spectrum and the fees that are levied on the spectrum. Steve recognized that what is needed for a truly large-scale rollout of telecom access in Africa is eliminating exactly these limitations. “My role has changed [from building up a social business enterprise] to advocacy and movement building in terms of lobbying regulators to mak[ing] spectrum more available to networks like Zenzeleni,” he describes. “The underlying thrust of my work in the last 15 years has always been: how do we enable people to solve their own access challenges. If you live in a small rural community, you should not have to wait for a large operator to come to you. You should be able to build the bridge to the internet wherever you are. Village Telco has been an entrepreneurial attempt to build those tools. But the bigger challenge is actually to create a broader regulatory dispensation that opens up possibilities for a range of such tools, not only WiFi, to be adopted by local communities and entrepreneurs. There is not a one-size-fits-all in solving access challenges.”


Backed with the support of Mozilla Fellowship, Steve started working on what seemed impossible to him back in 2009 - creating a large legislative change that would eliminate regulatory barriers for access to different spectrum (e.g. TV White Spaces, low-cost GSM) altogether. This is especially relevant with all the technologies that enable access having become so much more inexpensive. In 2015, Village Telco phased out its own commercial activity (their device is still being manufactured to a limited extent by their partner manufacturer in China), and since then has been maintaining the open-source community of local telephony and internet champions.

on what spectrum is available in the area that it is operating but still represents a technology that now any wireless internet service provider can adopt. Unlike WiFi, these frequencies do not require direct line-of-sight to deploy. They can penetrate foliage and even transmit over hills. This can mean significantly lower costs for towers that don’t have to be built as high. It represents an important complementary tool for solving affordable connectivity challenges.

Steve continues his work towards a world which would have a special suite of regulations designed to empower the local provision of access services. That would include affordable access to a The first regulatory success has been broader range of internet spectrum and achieved by Steve and fellow advocates special dispensations for small-scale in South Africa in early 2018; the reguorganizations specifically targeting lations that allow for a more flexible use rural areas, cooperatives and non-profit of another, previously protected, specorganizations delivering service in the trum - TV White Spaces (TVWS). TVWS underserved areas. He believes that, in technology can make a real difference 10 years, the access to spectrum in rural in the African system of telecom access areas will be treated differently than the distribution thanks to a combination access to spectrum in urban areas. of need for affordable rural access to broadband and the relative abundance “In 10 years, if I succeed, there will of unused television spectrum in rural not just be big operators serving the areas. Like WiFi, TVWS technology now market. There will be hundreds, if has a very low barrier to adoption in not thousands, of small scale operSouth Africa. It is not as permission-less ators providing unique solutions in as WiFi in that TVWS must connect to a areas which are not well served by geo-location database in order to check the big operators.� - Steve Song


Approach to System Change

Steve recognized a necessity to change the roles and relationships in the system of telecom access distribution in the rural Africa

At a Glance • Roles • Relationships • Rules & Mindsets • Resources • Results

He believed this system needed decentralization and a new role -the role of community enablers of telecom access. A different way to organize the internet and telephony access points and, as a result, reduction in price for rural consumers should become the characteristic traits of an improved system


Telecomunication system in Africa Village Telco’s shared access points make telco services more accessible. Before

After

Resources

Resources

-Undersea and terrestrial fibre optic infrastructure

-Undersea and terrestrial fibre optic infrastructure

-(Cost of) end-user devices

-(Cost of) end-user devices

-Money spent by customers for telco services

-Money spent by customers for telco services

Rules & mindsets -Informal business norm: telco contracts are being made with individual/household end consumers -Telco licenses are given to large companies only

Roles & Relationships

-Goodwill among consumers who share an access point (tbc)

Rules & mindsets -Informal business norm: telco contracts are being made with individual/ household end consumers as well as intermediaries to extend coverage -Telco licenses are given to large companies only

Roles & Relationships Before After

Large telecom company Customers able to afford telecom Customers unable to afford telecom

Large telecom company Customers able to afford telecom

Results -Cost of service: expensive

Access enablers Customers now able to afford telecom

-Coverage: low, especially in rural areas -Economic value: most accrued by large telco companies -Ability to innovate: low (because of missing incentives to reach rural population) -Indirect: low degree of connectedness and poor access to information/ healthcare/education services

Results -Cost of service: cheap to expensive (depending on service) Coverage: high Economic value: mostly accrued by large telco companies Ability to innovate: higher, due to closer contact and feedback loops with more customers with different needs Indirect: higher degree of connectedness, better access to information/healthcare/education services

*This is a simplified systems diagram, and not intended to be comprehensive. The analysis uses the “5Rs framework� developed by USAID. More information can be found here at usaidlearninglab.org


Resource

Before

After

Solid investments and quickly expanding high-level telecom infrastructure (undersea and terrestrial fibre optic infrastructure)

Goodwill / social capital of local communities to make the shared access points work

Slowly expanding last-mile infrastructure in rural areas

An affordable technological solution that empowers local communities to utilize licence-exempt spectra for connecting to internet and telephony via a community WiFi mesh network

No technological solution that would enable local leaders and entrepreneurs to provide access to internet and telephony to their peers, making it a domain of large telecom operators only

Role & Relationship

Only those members of local communities who can afford rather costly services of large telecom operators are connected to internet and telephony

Local leaders take initiative, and use the licence-exempt frequencies -WiFi- for the creation of local mesh networks. This network, on the one hand, is connected to the Internet via a backhaul and to the Public Switched Telephone Network (PSTN) via a Voice over Internet (VoIP) service provider, enabling low-cost voice transmission services (phone calls) and internet access for local population. Such an approach allows local leaders to deploy their own communications infrastructure, allows the community to control a significant part of telecom supply chain, and thus reduce and price for services and connect many more people to internet and telephony

Mindset & Rules

People’s mindsets: waiting for large multinational mobile operators to decide to expand to rural areas despite the high cost

People’s mindsets: they feel empowered to take initiative in solving their own access challenges

Regulations: Complicated access to telecom spectrum for small scale/local access initiatives, most spectra are strictly regulated

Regulations: More telecom spectra become accessible for smallscale/local access initiatives

Regulations: No special conditions for telecom operators focusing on rural areas

Regulations: Special conditions and support for telecom operators focusing on rural areas are in place, i.e. easier access to spectrum, subsidies, access to capital.

Business norm of providing access points to individual customers Business norm of providing access points to both individuals and groups of individuals

Results

Expensive telecom services

Affordable telecom services (30-90% decrease in price)

Poor connectedness of population between each other and poor access to information/healthcare/education services

High level of telephone connectedness among population and solid access to information/healthcare/education services and opportunities

High margins from telecom services flowing to large (multinational) corporations

Profits created with local telecom access distribution model stays in the community

Few economic/ empowerment opportunities for local people Local small entrepreneurs are empowered to provide telecom services to their communities


The Impact

·

·

7.500 devices now enable a low-cost wireless access point and local telephony in the African communities and around the world

At a Glance • Open Source • Smart Network

Dozens of local communities experimenting and further developing the idea of local affordable telephony and internet access. Today some of them are important precedents and illustrations of that idea, serving thousands of clients in their regions

·

Several manufacturing initiatives globally inspired to produce more advanced wireless access point devices adapted for the needs of rural populations

·

Advocacy efforts have overcome cumbersome protections, and instead enabled a more flexible use of a spectrum; this is critical for making it easy for more companies to provide internet access

In 2009 Stephen developed and started the production of a simple yet unique device called Mesh Potato which was a marriage of a low-cost wireless access point capable of running a mesh network with an Analog Telephony Adapter. In other words, a device that enabled rural people to create a local telephone network by plugging in regular stationary phones into one network running thanks to one local WiFi access point. The device was designed explicitly for rural areas to magnify existing telecom infrastructure and extend it to the last-

mile users - a unique market gap in South Africa at that time. Steve describes, “In South Africa, the market for this kind of technology was rural areas or places that required local voice communication networks, all which were inadequately served by existing mobile services. The number still is at least in hundreds of thousands, if not millions. ” For the purpose of manufacturing Mesh Potatoes, Village Telco partnered with the Chinese manufacturer Atcom. Aware of a great variety of potential

• Campaigns/Movement Building • Training/Consulting


local adaptation needs and of the necessity to spread the device as soon as possible to the widest audience possible, Steve made a strategic decision to open up the hardware design for replication, further improvement and refining it by communities and business. This allowed for a quick build-up of trust and the development of a strong opensource community of local community leaders, entrepreneurs and developers. Steve’s open approach also allowed him to reach a quick agreement with the manufacturer, Atcom. By producing devices for Village Telco, Dragino benefited from receiving a detailed product design to add to their portfolio of devices.

imenting and further developing the idea of Village Telco. A successful adherent to Village Telco’s approach and technology is, for example, a community cooperative, “Zenzeleni”, in the Eastern Cape which today serves thousands of clients in the region. Other wireless manufacturing initiatives have also emerged globally, such as Liberouter, that Village Telco can claim to have inspired. In a nutshell, by demonstrating that it is possible to design specific technologies for affordable rural access and that it is possible for a community to gain control over local telephony and internet access, Steve, along with some other pioneers in the field, has inspired replication and planted the seeds of the bottom-up movement for community-based low-cost access All together, Village Telco has sold apto telephony and internet. As for Steve proximately 7.500 devices that are now himself, thanks to the experience with being used around the world. Steve has Village Telco, he has developed proalso been actively partnering up with dif- found understanding of the connectivity ferent stakeholders, including research challenges in rural Africa, which allowed institutions, communities, and small him to proceed with important advocacy entrepreneurs, and has been supporting work, also when the production of Mesh dozens of local communities with exper- Potato devices was closed down.


Key Ingredients for Success

Always keeping the target systems change in mind and constantly re-assessing whether the current solution, be it a product, service or advocacy effort, is the most effective way to tackle the social problem at a large scale. Not excluding the possibility to change roles or combine several roles

Not holding on to the business venture that due to the combination of both internal and external conditions can become financially not sustainable. The success in advocacy effort might be in developing a good partner relationship with the regulators and giving over some know-how to them. For example, Steve is now developing and implementing training materials to sensitize government officials to the value of creating regulations for small scale operators.

“It’s been a journey for me to understand how to solve the problem. My perspective now is quite different from when I started Village Telco, although the overarching one of allowing people self-determination when it comes to building networks is still the same. It is how to get “I see regulators as critical linchthere that has changed.” pins in enabling affordable access for everyone. We develop means to Recognizing that sometimes it’s help them see that if they embrace not (only) the lack of technology that role, then they are the heroes that is holding the system back of affordable access globally. It can from improvement. Sometimes be an exciting reconceptualization what is needed is the regulatory for regulators themselves: they are changes, the insights for which can be not simply bureaucrats organizing based on the learnings from business paper and filling out forms, but pioexperience. neers and game-changers!”


Pitfalls to Avoid

1 Beware the Open Source Dilemma: more and more for profit investors are If you decide to undertake an open seeing the upside with great examples source approach, beware of both its abounding in the tech world, see, for strengths and weaknesses. Open example Github, Adobe and Netflix source allows to quickly build trust among many others. See: https://www. in a project and engage a lot of volundatamation.com/open-source/35teers. Open hardware framework altop-open-source-companies-1.html. lows for a quick build-up of trust with Being equipped with these successful partner manufacturers. At the same examples and being ready to proactivetime, the downside can be in seeking ly discuss upsides and downsides of investment. Steve’s experience with investing in an open-source company, attracting investment for his busican help build trust and overcome fears ness enterprise has shown that many and unclarity early on. straight forward (i.e. non “impact”) venture capitalists and even angel investors are suspicious about investing 2 Enable Revenue Generation with Your in companies which build strongly Product: Developing a new device can be on open-source philosophy. Steve very demanding, but in order to ensure believes the reason is that investors quick and wide scale adoption - particprefer to secure a way of sequestering ularly at the bottom of the pyramid - it the value they have invested, should is very important for you to enable your things go wrong and a company go end customers to also generate revenue bankrupt. One of the most common from the product. For example, the Vilways of doing it is by sequestering lage Telco technology was easy to deploy, the intellectual property (whether the network could be set up in a day it turns out to be a realistic way for and people could right away make calls investors to reclaim value or not). and access the internet. However, what The fact of not having such an option Village Telco didn’t provide to local comis uneasy for many. Steve, however, munities and small entrepreneurs, was still managed to attract 50k of seed a companion suit of easy-to-use billing funding investment. But for a combitools that would allow people to charge nation of reasons, his investor decided for services. Creating the means for anynot to invest in Village Telco which one who buys the technology to instantly planned to maintain open source and start recouping their investment would open hardware, and instead invested have been a smart move for Village Telco in a proprietary hardware company back then. It could also smooth the trandesigning premium devices. However, sition to a service-provider business.


3 Keep external factors in mind: Just like Village Telco couldn’t predict the extent to which smartphone would become the device of the internet in the emerging markets, the destiny of a tech business can be influenced by a combination of strong external factors influencing the demand for your product and it is important to keep an eye on such things coming and adjust your strategy. “Apple Iphone was released in 2007. While it existed, it seemed inconceivable in South Africa that a smartphone like that would ever find its way into the hands of the poor. And now you can buy a simple smartphone for $50, which is amazing.” 4 The Right Partner is Critical: Leading a social business on your own might be quite a challenging endeavor in the long run in terms of your own wellbeing. Do your best to find the right partner early on. If you still find yourself in the university environment, do seize this opportunity, as this environment seems to be conducive for entrepreneurial endeavors.

“Due to the nature of entrepreneurship, there are tremendous highs and lows on the way. It is a rollercoaster. One day you have a technical breakthrough and you are on top of the world ready to take on the Silicon Valley, and the next day your technology fails in some critical way you couldn’t predict and sets your production months back. When you are two, it’s rare when you are both down at the same time. Having a partner can help you ride out the lows and enjoy the highs.”


Acknowledgements ❏

Authored by Reem Rahman, Olga Shirobokova, Odin Mühlenbein, Nadine Freeman and Mark Cheng for Ashoka Globalizer

Interviews by Ken Banks (FrontlineSMS), Michael Feerick (Alison), Steve Song (VillageTelco), Dr. Devendra (Aaravid Eye Care Systems), and Tristram Stuart (Toast Ale) Creative Commons creativecommons.org/licenses/by-sa/4.0 Licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.