07 October 2007

Social Entrepreneurs: The Village Phone Program; Since When is Success Obsolete?

"Connectivity is productivity," wrote Iqbal Quadir, describing how he arrived at the idea for what became GrameenPhone. "Connection enables, disconnection disables."

By now, the field-changing story of GrameenPhone and its Village Phone Program is well known. It started as a joint partnership between Grameen Telecom (which owns 35%), Gonofone, Japan's Marubeni Corporation, and the Norwegian telecommunications company Telenor Mobile Communications AS, which has "led to other opportunities, other kinds of progress in the villages."

In 1993, when Quadir originally conceived his idea, there were 2 phones per 1,000 people in Bangladesh and virtually none in rural villages where over 100 million people lived. Meanwhile, back in the U.S., where Quadir was educated, the Internet and email were beginning to revolutionize communications and, by extension, productivity.

Quadir began searching for evidence of the link between telecommunications and economic progress. He found it.

UN studies indicated that an underdeveloped economy, such as that found in Quadir's native Bangladesh, "could grow by US$5,000 annually in GNP due to one additional phone that, as it turns out, would only cost US$1,300." It was an opportunity that the young Quadir could not ignore.

He looked to Grameen Bank, which had brought hope and economic progress to rural Bangladesh via microcredit infrastructure; by then, the bank operated in 35,000 villages and made US$100-200 loans to the women who lived there.

"To me, connectivity could play a similar role," said Quadir. "Both credit and connectivity empower individuals."

Telephones, thought Quadir, connect producers and customers, and allow women in poor villages to call ahead when making doctor appointments. Phones could also generate income for the women who sell excess call time to other women in their village. His start-up, Gonofone, which means "peoples phones," could create self-employment through small loans to acquire wireless handsets.

A decade later, according to David Keogh, manager of Village Technology at Grameen Foundation's Technology Center in Seattle, Grameen Telecom "now has 294,000 operators." Pretty good scale, considering many experts predicted would reach its saturation-point of 50,000 clients after 5 years.

Replication of the Village Phone model has led to expansion into Uganda, Rwanda, Cambodia, Senegal, Cameroon, Haiti, and the Philippines. At least 10,000 operators have answered the call in Uganda and another 600 in Rwanda, with the recently launched pilot in Cameroon already signing up 50 clients.

Yet, Richard Shaffer, longtime Wall Street Journal columnist and the author of a recent article in Fast Company magazine (FC), claims that the concept of giving loans for cell phones in rural villages is now obsolete.

In Bangladesh, phones are now so cheap and available, the author argues, that the "phone ladies" are no longer necessary. The author worries that the women can no longer make a living on their cell phones alone. Shaffer asserts that the program no longer supports claims that it provides a stepping stone out of poverty.

But this seems to ignore the fact that, as anecdotal as it may be, many side businesses have been created by this program over the past ten years, in part because the women who start out with phone loan later consider other ways to diversify their businesses.

"One lady is thinking about raising a large number of chickens," writes Quadir in an article on gramBangla.com, "a business she had not pursued earlier for fear of not being able to call a veterinarian on time if the chickens developed a disease." Another decides to grow bananas because market prices are now just a phone call away, which leads to better harvesting and shipping decisions.

Shaffer unfairly claims that lower profits from cell phones actually force the operators to diversify. What's so bad about that?

No business that fails to diversify or innovate over ten years is going to stay around very long. Competitors enter lucrative markets and you innovate or die. Like any business, Grameen Phone has had to adjust its strategy along the way.

Now that phones are cheap and there are many others offering such services, it would seem that the Village Phone model is obsolete, as Shaffer offers. But, lest we forget that the surest way to test market demand is to create competition. The original project has spawned a whole range of potential competitors and customers, and that is healthy and productive for the overall economy. It also suits the original aims quite well.

According to Keogh, the Village Phone model was developed in reaction to several market shortcomings; namely, lack of coverage and the length of time it would take for phone companies to extend their reach to rural areas; handsets were (then) too expensive for most of the rural poor; and service fees for airtime were simply too high.

For those associated with Gonofone and its original aims, accessing Grameen Bank's large network of borrowers to get phones in the hands of the rural poor was a temporary means, not an end.

Indeed, one of Iqbal Quadir's original goals for Gonofone was to identify and create a market for telecommunications where others had not seen one before, enabling the digital revolution to get a foothold in a poor country.

Gonofone is no longer a partner in Grameen Telecom, having sold its shares to Telenor, but in an annual report published in 2004, its aims were clear: to use the power of connectivity to spur higher productivity; to use the rapidly declining costs of telecommunications technology to reach poor communities; and to leverage the borrower network of Grameen Bank to deliver connectivity. In short, the goal was to transform the country of Bangladesh by identifying and creating a market for telecom services.

One could argue this has been accomplished and then some. Sources say there are now at least six telecoms providing cell phone services in Bangladesh. "Cell phones are everywhere," according to one source quoted in the FC article.

The current situation, where cell phones are now ubiquitous, can be seen as one definition of success -- free market style.

"All products have life cycles," suggests Keogh in an email. "And the decline in Village Phone operator incomes over the past years was inevitable."

However, the costs of equipment and airtime are also coming down, and this allows the loans to be smaller, allowing a valuable revenue stream for many individuals.

"It also provides an important service in rural communities where even at current market prices many poor people are still unable to afford their own phones," Keogh offers.

In my view, Shaffer misses several key points in his FC article:

1. The real goal of the "Village Phone" idea in Bangladesh was to create nationwide telecom access for all people;

2. The Village Phone program has helped create additional opportunities for entrepreneurs to diversify their income streams and created over 290,000 businesses in Bangladesh alone;

3. The shareholders of Grameen Bank (the real owners of the bank who access the loans) now own 38 percent (including Marubeni’s 3 percent, which Grameen acquired) of the largest telecom in Bangladesh -- a US$3bn business, which is a pretty good return on their investment.

That sounds like success when measured against the stated aims of the original partners in the Village Phone Program.

So what exactly does Shaffer mean by obsolete? And what is so bad about obsolescence if it means greater competition reducing costs and greater access for more of the world's poor?

The model may no longer be appropriate in some places and may not provide "a clear path out of the poverty cycle." But what of it? The Village Phone program has clearly created a market where there was none and where few were willing to go before.

Shaffer admits that Grameen Phone overcame "risks -- spending $1.2 billion, for example, on communications infrastructure in an impoverished land -- that few others would have considered and has improved the lives of countless people."

If anything, in my view, the program may be faulted for failing to see its true business. Like the seemingly apocryphal story of the railroads losing out to trucking and airplanes because they thought they were in the railroad business rather than the transportation business, Grameen Phone thought they were in the retail cell phone business rather than in the business of transforming communications.

The fact is, according to Keogh and the Grameen Foundation, there are "still 2.6 billion people living under two dollars a day who cannot purchase their own phones, and for them affordable, accessible telephone services are vital." This would appear to be an untapped market for a viable, sustainable avenue for providing services, whether cell phones or other needs.

Indeed, Grameen Foundation is, Keogh told me in an email, "developing mobile applications that can be built on the Village Phone platform to enable communities to access healthcare, financial, educational and other critical resources."

My bottom line is: Let's not hang up on the Village Phone Program just yet; it may still provide value and help bridge a gap in the digital divide.

1 comment:

Danothebaldyheid said...

Thanks for an interesting article - I do wonder whether the success of the microloan scenario (mostly by Grameen Bank) will one day lead to a change in the operation of welfare systems in western countries. There seems to be a strong argument for giving people responsibility for their own lives hidden in its success (and I don't mean that in a right wing, let the poor starve, kind of a way).