The 2 Big Points

So I have submitted a draft of my paper to my faculty adviser. I'm not going to post it just now, but I'll lay out gist of it.

Situation:

People are concerned about the "digital divide" - that is they worry that the poor who can't afford internet access will be excluded from the new information economy.

Wireless broadband (WiMAX) can help provide access for the poor in the developing world because it solves the last mile problem (the expensive last mile of wire infrastructure that must be built to connect users the communication infrastructure backbone.) This is exactly what happened a few years ago when cell phones leapfrogged wireline phone infrastructure in the developing world.

Telecoms don't seem to be interested in doing this because they claim you can't make money selling data service to poor people.

The U.N. and governments are doing studies and making recommendations on how to increase demand to sweeten the business proposition for telecos.

My analysis:

WiMAX is a lot different business proposition than cell phones were for a couple reasons. Cell phone service providers were able to do some creative pricing things they won't be able to recreate as easily (calling party pays, no-contract pre-paid minutes) with WiMAX. Without those tools at their disposal, providers will have less incentive to provide broadband access in the developing world.

Also, even with access, the poor in the developing nations don't have much reason to use the technology in its current state (they don't have computers, they have less general education, they speak less English etc.) This means low demand for service and hence low revenues.

So governments can engage in programs to encourage computer ownership, improve education etc. That's great, but there are other ways to spur demand. What WiMAX and the Internet in the developing world really need is a killer app. Something that makes using the Internet (especially the mobile Internet) and easier and more valuable experience for people in the developing world.

Wrong thinking on ICT diffusion

I've been reading a lot about ICT (Information Communication Technology) diffusion lately. Thinkers everywhere from universities to consulting companies to the U.N. have tried to identify the variables that that drive diffusion. I think, they have been largely successful in this pursuit.

The drivers (and this is not a big shock) seem to be:

1. Economy/Income - ICT diffuses faster in areas where people have more $$
2. Education - ICT diffuses faster in areas where people are better educated. This includes specific technical training on using ICT.
3. Prices/Regulation - relative prices of ICT also determine diffusion, because so much ICT operates in imperfect (controlled) markets. Because of this, government regulation has a large influence on price and hence diffusion.
4. Political Rights/Openness - ICT diffuses faster in areas with greater political "openness"

The U.N. combines many of these variables in its Human Development Index and claims that ICT can be a valuable tool in improving a country's HDI. It follows, argue many of these experts, that policy makers need to address these root causes. Assuming everything is already being done to improve the economy governments should, subsidize ICT hardware to lower prices, provide computer/technical education to stimulate demand, lower regulatory barriers that could slow ICT diffusion.

This is all well and good - I agree that governments should take those steps, but there's something missing here (notice the title of my blog post is misleading - I'm not saying the thinking is wrong, just that there might me more to the story - sue me. It's a blog and I'm supposed to be extra dramatic.) If people have a hard time using ICT because of low levels of education, we can solve that problem by educating them, or . . . by designing ICT to be more easily used by people with little education. Imagine you are trying to sell a new product to a market. Well, if that market has some characteristics/preferences that interfere with product usability you can do two things: 1) try to change market preferences (EXPENSIVE) or 2) you can try to develop the product to better address the needs of the market. I would argue that #2 is usually the better option, yet that has not been the focus of policy recommendations.

Full disclosure: I'm biased. I go to Kellogg. I've spent the last 18 months focusing on how to think like a marketer - and I'm definitely looking at this problem like a product manager. Also, the whole reason I got interested in this project is that I lived in a small Nicaraguan village in 2004 when the first internet cafe opened up there. I watched as people who had never had a home phone came and set up hotmail and IM accounts - especially IM. I saw first-hand how a group (who according to the variables identified above) who should not have adopted the technology, embraced it. They did so, because there was a compelling value proposition. They could quickly and cheaply communicate with friends around the world. This worked because IM was so simple (users need only be literate or even semi-literate) and it worked well despite the slow slow slow (definitely non-broadband) connection we had in the village (Condega.) OK, UN, you want people to adopt broadband? Give them a reason to adopt broadband. We need a broadband application like IM (which does not require broadband.) Something that offers value to consumers. Something that has a very simple user interface.

I think I could gather data on the adoption of simple cell phones and IM (simple, useful technology) and compare it to adoption of more complex technology. This could prove (or disprove) that when there is a useful technology, that is simple for people to use, consumers in developing economies are very likely to adopt it. Now, I just need to get some data on diffusion of IM in LATM (cell phones I have) . . .

Prior Research on ROI

There has been a significant amount of research done to calculate the ROI for building a WiMAX network. There are even expensive Excel spreadsheet/VB macro tools that you can buy to model the costs and revenues for deploying such a network. Looking at the prior research (and the output from a couple of those models - I certainly can't afford to buy a $4K Excel file) I think that I can work up a reasonable model for a region in LATM. I will obviously have to make some assumptions about how the costs and revenue will be different, but it should be doable.

That, paired with discussion about the barriers to adoption, and the lack of a killer app should put forth a pretty convincing case as to why WiMAX, as is will be a tough business in LATM. The example of what Bloomberg did in NY (see earlier post) will start to shed some light on possible solutions. I have a few other ideas that I can then add based on last year's research.

At this point, I'm thinking I will have one draft of the paper done in two weeks. I'll need to talk to my faculty advisor after the Holidays and then post a final version late January.

ROI for building the network

Based on information that I have been gathering, I think that this week will be dedicated to calculating the Return on Investment for building a WiMAX network in LATM.

The key here will be to identify revenue that would not have been earned with existing infrastructure. In other words, I will need to look at 1) the increase in ARPU from the WiMAX network and 2) all the revenue from new customers (these will likely be the fixed users.) Lastly, I will need to subtract any revenue lost to cannibalization. That is, I'll need to make some assumptions about how much less users will be talking if they are sending IMs.

I have a lot of data that will help me estimate these numbers - Laptop penetration, smartphone penetration, total population, diffusion patterns - but I will also need to make some assumptions. How much will these new markets increase spending on service if given access to broadband data services? How will they react as prices come down? How will competitors behave? How long until these networks become obsolete? And many more assumptions.

Because of the assumptions I need to make, I do not anticipate my forecasts to be the be-all-end-all to the financial calculations on this business model. Instead, my hope is that I will provide a suitible methodology so that others can refine my assumptions and form a more accurate financial picture of this business.

Recently (during one of many job interviews), I met someone who had worked on a project with many parallels to my research. This past summer, Diamond Technology Management Consultants conducted a study for the City of New York on the most effective way to increase broadband adoption by low-income residents (http://www.nysun.com/new-york/broadband-report-digital-divide-exists-in-city/82951/) The city asked Diamond to investigate ways to increase residential use of broadband internet service, including the potential for a municipal WiFi network. What the firm found, was that the problem was not lack of access to broadband (98% of the residents had access) but that 1) residents didn't have computers to take advantage of the internet, 2) residents didn't understand the benefits of using broadband, and 3) providers were not interested in marketing to low-income users, because the average life-time value of a customer would not justify the high customer acquisition costs.


This is bad news for WiMAX in LATM. This study says that even with access, and even in New York City (with presumably higher literacy rates and levels of technical expertise) low-income consumers were unlikely to take advantage of broadband service. In order to drive usage, governments (and possibly providers) will need to heavily subsidize consumer equipment and education. In addition governments may need to provide some level of guarantee so that telecos could recoup their customer acquisition costs.

I've reached out to one of the consultants who worked on this study. Hopefully he can provide some more insights into the findings and possible solutions.

Refining the Thesis

So, after meeting with my faculty adviser and reading "Pricing Internet Access" (Greenstein, Shane. IEEE Micro, 0272-1732/01, 2001.) I think I'm a little closer to a thesis.

The current business model for telecoms in LATM is not sufficient to successfully support deployment of a 4G network. (I think I can show evidence of this based on margins in LATM and the problems that Alcatel-Lucent had in India.) With margins so squeezed already, it is going to be impossible to justify building the new network.

There are several barriers preventing telecoms from recouping their CAPEX investments. One of these barriers is failure of the 4G ecosystem to CREATE all the potential value of a 4G network. Mobile, wireless broadband still lacks the "killer ap." 4G networks have more capability than either 3G networks or terrestrial broadband - BUT, we're still doing the same things on the new network that we've done on the old networks. We need some application (and device quite possibly) that truly takes advantage of the high bandwidth and ability to move around (mobility.) Once we have that, there will be much more value on the table for service providers and consumers to share.

Another barrier, is the difficulty capturing that value. It is easy to apply a lot of the lessons of internet pricing to 4G access pricing. Taking this view, the current system is inadequate. Current pricing is either takes the form of an unlimited plan or a pre-pay, pay-as-you-go type of plan. This, like past internet pricing is not economically optimal. On the side of the unlimited plan, consumers will over use the network - accessing the network when the marginal utility they receive is less than the marginal cost for service providers. On the other hand, the pre-pay plans are analogous to metered internet pricing - utility is destroyed on the consumer side because no one likes to keep an eye on a meter ticking down the time they have for a web session. Value is also destroyed for the providers, because of the additional costs of administering this system.

Lastly, the diffusion of hardware in these areas make it difficult to capture value. Subsidizing the CPEs for WiMAX or LTE networks will be much more costly than subsidizing, say, a 2G handset. Until, laptops, phones and other devices are widely available, there won't be enough people using WiMAX to create significant value.

This could be a good portion of the paper and I believe there is a lot of research I can cite to support my claim. I'm a little disappointed at the negative bent this is taking, but I still hope to have room in my paper to propose some potential solutions.

Is tiered pricing appropriate for mobile broadband?

Right now I'm concentrating on the question of 4G pricing in Latin America. Should it be flat, or will providers need to find ways to offer tiered, pay-for-use models? I have some DCF models from this summer ROI for providers WiMAX providers. I hope to do some tweaking of those models and see what happens with tiered pricing. The problem with that is (as always) these models will only be as good as the assumptions and right now, who knows how accurate those assumptions will be.

In the meantime, I think it is informative to think about whether tiered pricing could even be used for 4G. The best historical analogy for this issue is the pricing of internet service. So some papers that look at internet pricing:

#1 - Andrew Odlyzko wrote an interesting piece in 2001: His thesis was basically that internet pricing models would follow historical patterns for communication technology - namely that prices would decrease and tiered pricing would slowly give way to simple pricing plans.

Interesting, so how does this relate to my project? I'd say a couple of ways. First, Odlyzko talks about how the simple pricing plans helped improve diffusion. So even if WiMAX needs to use tiered pricing in Latin America to cover infrastructure investment, that pricing may hurt adoption. Second, would wireless, mobile broadband be a just another means to access internet service or is it a fundamentally different product altogether? If it is different, then tiered pricing models will be more feasible.

#2 Jorn Altman wrote about internet pricing in 2001. He noted that because users are not faced with the true marginal cost of excess usage that they tend to over-use internet service. Thus, flat rate plans are inefficient. He also found that users did not like a "ticking clock" of metered plans. Not super groundbreaking, Jorn. I agree that flat rate plans are inefficient, but what to do about it?

After a summer of working with people on all sides of the wireless industry, this is the situation I see: 4G wireless (whether WiMAX or LTE) can bring a lot of value (or utility, or economic benefit) to a lot of people - but it's not cheap. Especially in developing markets, low margins for service providers will make it difficult to justify for the CAPEX for a WiMAX network. Finding an economically efficient way to price WiMAX or LTE service would help make up that CAPEX. Still looking for that solution . . .

I give myself 2 more weeks on this topic, before I need to move away from pricing questions. Luckily, I'm taking classes from one of the foremost authorities on internet service pricing: Dr. Shane Greenstein.

Research for the upcoming quarter

So, my last couple posts have been basically statement of purpose papers pasted into a blog. From here on out, posts will be less formal and more focused on what I'm researching and my methodology. That said, I'll get down to business.

I left things off with a paper last year discussing the overall business model for a WiMAX telco. I touched on diffusion (demand), costs (supply), and other technology (substitutes.) Clearly all of these issues will be a factor for a business selling WiMAX, but now I want to focus on demand in Latin America. Specifically, I want to answer the question: How can companies package and price wireless, mobile broadband products in a way that will create and capture value in Latin America?

This approach, I believe has several advantages to looking at the broad business plan of WiMAX in Latin America.

First, I don't think I can add a lot of value in assessing the cost side of this business. The cost of deploying a WiMAX network is something that is well understood by the engineers at telecos and equipment manufacturers. Given, my business training, I can predict trends for these costs (lower costs as the technology moves down the learning curve, lower costs in developing markets where telecos have low margins.) But my contributions in this area would not be especially useful.

I also want to avoid getting into a protracted discussion of WiMAX vs. LTE vs. 802.11n. The standard of choice is, of course, very important to companies investing in infrastructure. However, from my perspective, the important thing is that long-range, wireless broadband will become available in the next five years and someone will be selling that service.

I want to understand, what products (service configurations) at what prices companies should offer in Latin America. I see three potential sources of information that will inform my research and conclusions:

1. Research on market entry in Latin America. There has been much literature written recently on "Bottom of the Pyramid" business opportunities. Papers discussing entry into Latin America will be useful - especially if they discuss entry of services. By analyzing how companies have successfully adapted and priced service offerings for the Latin American market, I hope to identify patterns and strategies that can be applied to wireless broadband service.

2. Research on the internet service pricing throughout the world. There is a large body of literature discussing various pricing strategies for internet service - especially in lieu of the net-neutrality debate. Wireless broadband service prices will clearly be informed by last ten years of pricing strategies by ISPs throughout the world.

3. Current mobile phone services and pricing in Latin America. Maybe this should be first. In order to understand how LATM telcos must change, we need to understand where they are starting from. A survey of what products and pricing are currently offered will serve as the base from which I hope to see how the companies need to evolve.

Update of the Issues

Questions about the Business Case for Wireless Broadband in Latin America

IEEE standard 802.16, better known as WiMAX, is a technology platform that can provide users with broadband internet connection over licensed radio spectrum. In the developed world, WiMAX will compete with established mobile phone standards (e.g. GSM, CDMA) and terrestrial data services to deliver voice and internet connectivity to home and mobile internet users. For most consumers, the change will be one of more evolution than revolution. By contrast, WiMAX can bring revolutionary changes to the developing world. With a less substantial data infrastructure and lower internet penetration, the developing world is poised to gain a much greater marginal benefit from WiMAX technology. However, there are still significant challenges that need to be addressed before we can expect to see widespread adoption. In many ways, Latin America offers an excellent test case to evaluate the possibilities WiMAX business in the developing world. This paper will try to identify what factors need to come together for WiMAX to become a viable business opportunity in Latin America. Specifically, I will examine the technological context of WiMAX, the business context for the likely providers of WiMAX service, and the consumer context for the largest segment of WiMAX customers in Latin America.

Part I: Technology Factors

WiMAX (worldwide interoperability for microwave access) as the 802.16 standard is known, “specifies the radio-frequency technology for wireless metropolitan area networks.” (Vaughan-Nichols, "Achieving Wireless Broadband with WiMAX." 2004). Currently, the IEEE has two established standards for WiMAX, 802.16d (commonly referred to as “Fixed”) and 802.16e (also known as “Mobile”.) Both support “non-line-of-sight . . . fixed and nomadic applications”, but only the mobile standard allows for “portable and mobile solutions.” (Motorola, Inc., WiMAX: E vs. D, The Advantages of 802.16e over 802.16d. 2007). In other words, “Fixed” WiMAX could replace cable or DSL data lines into a consumer’s home or business. Inside, the consumer would then connect to the network using Customer Premise Equiptment (CPE – analogous to a cable or DSL modem) connected directly or via a WiFi to his/her computer (Motorola and Intel, 2007). By eliminating the need for terrestial, cable infrastructure, this scenario may make it financially feasible for companies to extend internet service to areas that were previously unprofitable to serve. However, because this standard does not support portible or mobile applications, this scenario would offer little benefit over existing home broadband services from a consumer perspective. “Mobile” WiMAX on the other hand, would allow users to access the network while on the go, whether in a their homes, a public park or even a moving vehicle. From a bandwidth perspective, WiMAX can provide broadband speed internet access to both consumers and enterprises at fast enough rates to support demanding broadband application like streaming video and online gaming (Motorola, Inc., 2007 Maximizing the Wireless Network Evolution with WiMAX.) Exhibit I shows a comparison of the relative mobility and bandwidth of leading IP (Internet Protocol) technologies as well as the requirements for several popular applications. Clearly, 802.16e has the greatest flexibilty in terms of both speed and mobility. As more applications and usage scenarios are developed that require both, WiMAX will become more valuable to consumers than existing technologies. In other words, because WiMAX is positioned in the uppermost, righthand corner of the matrix in Exhibit I, it is the only platform capable of handling all of the applications listed. However, the true potential of WiMAX will only be realized when more applications are developed that can only exist in the upper-right quadrant.

Clearly mobile WiMAX can offer significant value to consumers throughout the world, but its adoption does face several techological hurdles. First, experts have noted that new technologies often take off much more slowy than originally expected. One factor influencing phenomena is that new product adoption tends to follow an “S” shaped cumulative adoption curve. (Thomas "Estimationg Mark Opportunity for New Products." In New Product Development, by Robert Thomas.1993). Most people have a tendency to envision a more linear projectinon, and thus overestimate the rate of adoption in a product’s lifecyle (interestly, this also leads to underestimation of adoption later in the product’s life.) Additonally, incumbent technologies often improve significantly over time, slowing the demand for new technologies (Brody. "Great Expectations." July 1991). Lastly, Long-Term-Evolution or LTE is expected to become available in the next five to seven years. Though, LTE’s standards and capabilities have yet to be completely defined, it has the potential to leap-frog WiMAX as the preferred mobile broadband standard. This has also slowed the adoption of WiMAX (Seth, Ripan. interview by Jacob Bradbury. IT Engineer at Motorola (June 4, 2008).). Once again, these are factors that will have great effect on the viability of WiMAX as a business in Latin America. In order to best understand the opportuntity and life-cycle of WiMAX, it will be useful to buid models to estimate both the Total Addressable Market for WiMAX in a given country, as well as the market share WiMAX can expect to win given the competing technologies.

Part II – Business Factors

Aside from understanding the potential size of the Latin American market, potential WiMAX network operator will need to understand the costs associated with building WiMAX infrastructure and the amount of value that potential operators will be able to capture after building that infrastructure.

WiMAX is a relatively young technology and the costs of the equipment required to build and maintain a network are constantly evolving. WiMAX networks have been deployed in a diverse portfolio of countries, ranging from Pakistan, to Belgium (McLean, Heather. "Key news in recent months." Total Telecom Magazine: WiMAX Guide. London: Terrapinn, October 2007.) Depending on the different circumstances of the deployment, this can represent very different CAPEX and OPEX for the network operator. Payback scenarios will vary accordingly. For example, in Pakistan, Wateen telecom was able to deliver both voice and data networks with a single infrastructure, because existing mobile and broadband infrastructure was insufficient (or non-existent). By building its network from the ground up, Wateen significantly lowered the revenue required to recoup its full investment costs (Motorola, Inc. Wateen Telecom Launches WiMAX to 17 Cities in Pakistan in Nine Months. White Paper, Motorola, Inc, 2007.) – that is, all Wateen’s revenue went to paying off its WiMAX investment. On the other hand, in areas with robust existing networks, operators may only add WiMAX as a data layer to their current voice archetecture. In these cases, only the marginal revenue from addtitional data services will go towards justifying the addtitional costs. Businesses will need financial models that analyze the payback ratios under these varying cost and deployment scenarios.

In addition to the costs associated with WiMAX, network operators will need to fully understand their revenue sources with WiMAX. Technology products today often rely on large and complex networks and value chains to deliver products and services to consumers. Telecommunications are no exception. Network operators must partner with device manufacturers, content providers, application developers, and retailers in order to provide users with access to mobile networks (Phillip Olla, Nandish V. Patel. "A value chain model for mobile data service providers." Telecommunications Policy, 2002.) (Buellingen, Franz, and Martin Woerter. "Development perspectives, firm strategies and applications in mobile commerce." Journal of Business Research, 2004: 1402– 1408.). Additionally, governments license the spectrum that each operator can use and must give carriers the right of way to build base stations to broadcast the network’s signal. This complex system could be both a blessing and a curse for WiMAX’s deployment in Latin America. On the negative side, operators have become increasingly wary of giving too much control and value to partners in the value chain and becoming “dumb pipes” (Vogelstein, Fred. "The Untold Story: How the iPhone Blew Up the Wireless Industry." Wired, January 9, 2008.). Internet Service Providers had to watch as value chain partners like Cisco and Google had captured a large share of the value from internet infrastructure that the ISPs had invested to build. Mobile operators do not want to repeat that mistake. Additionally, the high cost of licensing spectrum and the government’s control of the right of way to build more base stations serve as prohibitively high barriers to entry. Therefore, if incumbent firms do not adopt WiMAX, it is unlikely that a new venture could move into the market and compete. On the other hand, by partnering with third party content and application vendors, mobile operators will be better able to create and deliver value to WiMAX customers (Olla and Patel 2002). Given that existing network operators will be the most likely owners of future WiMAX networks in Latin America, it will be critical to understand how they can manage the ecosystem surrounding WiMAX. They must find a balance to both create value for the consumer and capture a sufficient portion of that value so as to recoup investment costs.

Part III – Consumer Factors

Driving the revenue from WiMAX technology in Latin America, will be the consumers. Given that WiMAX is a new product it is important to understand who are the consumers who will use this product and what factors will drive its adoption. Through examining the introduction of similar products and the reactions of similar markets, we can begin to indentify the factors that will be important for WiMAX adoption. This section of the paper will discuss the some of the critical characteristics of the Latin American market, discuss important product factors for that market, and analyze the adoption on analogous products in similar markets.

Latin America is a region with vast disparities in the distribution of wealth. The region is home to some to some of the countries with the worst Gini coefficients (a statistical measure of the distribution of income, 0 representing perfect equality and 100 representing perfect inequality) in the world. Brazil is rated at 57, Bolivia at 60.1, Columbia at 58.6 compared to 40.8 in the US and 28.3 in Germany (Watkins, Kevin. Human Development Report 2007/2008. New York: United Nations Development Programme, 2007.) Much of the world’s population lives in nations with per capita GDP of less than $10,000 (Mahajan, Vijay, and Kamina Banga. The 86 Percent Solution. Upper Saddle River, NJ: Wharton School Publishing, 2006.) In Latin America the per capita GDP ranges from $954 in Nicaragua to $7,454 in Mexico[1] (Watkins 2007.) Given this context, WiMAX operators will need to sell services to a large portion of economically disadvantaged consumers. The poorest of this group are often referred to as the Bottom of the Pyramid (BOP) (Prahalad, C.K. The Fortune at the Bottom of the Pyramid. Upper Saddle River, NJ: Wharton School Publishing, 2005.).

Recently there has been much literature discussing successful products and business strategies for addressing this market. Of particular note are C.K. Prahalad’s The Fortune at the Bottom of the Pyramid, and The 86% Solution by Vijay Mahajan and Kamini Banga. These books list several factors critical for successful products sold to the economically disadvantaged. While not all the information is relevant to WiMAX (much of this literature is intended for consumer packaged goods) there are some important characteristics for WiMAX and its complementary products. Mahajan and Banga note that products must consider environment, culture and religion as well as being simple and easy to use – over-engineering hardware or end-user applications would be disastrous. It will be important to understand which features of an offering for the developing world are marginally more important and which are superfluous when building consumer hardware and applications. Also, products that have a cost advantage without sacrificing quality do especially well in lower income markets (Mahajan and Banga 2006). Prahalad reiterates many of those points but also explains that the interface will be critical for large scale consumer adoption. Also, the product must be scalable – because BOP consumers cannot afford to pay high prices, revenue must be generated through volume. Lastly, he notes that consumer education is extremely important in this context (Prahalad 2005). In its nascent stage, it is still unclear how these factor will impact WiMAX, but a few things are worth noting. With the high price elasticity in the Latin American market, WiMAX networks will need to have a cost advantage over 2G, 3G and terrestrial broadband for areas that already have coverage from incumbent technologies. Depending on the deployment scenario, WiMAX may have just such an advantage, (WiMAX Forum. WiMAX: The Business Case for Fixed Wireless Access in Emerging Markets. White Paper, WiMAX Forum, 2005.) Because of the complementarities between the consumer hardware and software using the network and the network itself, those consumer products will be critical to WiMAX’s success. WiMAX will need consumers to adopt new technologies that require both highspeed data transmission and mobility in order to realize its true potential value. In Latin America, these technologies must be built and marketed with the usability, educational and environmental requirements listed above. For example, WiMAX CPEs and handsets must be simple to use and durable enough to withstand the dust and extreme heat of equatorial South America. Certainly much of the technology supporting portable devices has trended towards simplicity and usability in recent years, some of it specifically designed for the developing world (Parikh, T.S. " Designing an Architecture for Delivering Mobile Information Services to the Rural Developing World." Mobile Computing Systems and Applications, 2006. WMCSA '06. Proceedings. 7th IEEE Workshop on. 2006. 31- 33.) There is no reason to expect that those advances will not translate over to WiMAX offerings. What will be more complicated, will be finding ways to offer under-informed consumers inexpensive, simple and meaningful ways to purchase access to mobile broadband networks. “I cannot over emphasize the importance of keeping the price low. You can’t sell something that costs more that costs more than $2.” (Forde, Brian, interview by Jacob Bradbury. Owner, Llamadas Heladas (June 30, 2008). Explained Brian Forde, the owner of a Nicaraguan start-up that sells access to VoIP phones to Nicaraguan consumers. Mr. Forde went on to emphasize the importance of usability in his offerings. “People like us because we have a screen that shows them exactly how much they are spending. That makes it easy for them to use and they like that even if we are not always the cheapest.” (Forde 2008) This will be a challenge for WiMAX as consumers are likely better able understand what it means to purchase a fixed amount of talk time on a voice network than they will be to understand purchasing bit-rate access.

Recent examples of technology diffusion and the success of analogous business models are also very informative when evaluating WiMAX’s potential in Latin America. Certainly there are obstacles, but it is clear that the developing world in general, and specifically Latin America are markets willing to adopt new technology and there exist viable business opportunities. Latin American spending on information and communication technology as a percent of GDP climbed from nearly half the level in the United States in 1991 to almost equivalent levels by 2003 (Pohjola, Matti. "The Adoption and Diffusion of ICT Across Countries: Patterns and Determinants." In The New Economy Handbook. Academic Press, 2003). After slow beginnings, adoption of internet and mobile phone technologies have been rapid. In 2005, Latin America boasted on average 439 mobile phone subscribers per 1000 people, compared with a negligible number of subscribers in 1990. By comparison there were 680 and 21 subscribers per 1,000 people in the US for 2005 and 1990 respectively (Watkins 2007). The key determinants for adoption across countries of information and communication technology appear to be income, relative price of technology, and education (Pohjola 2003). Exhibits II and III show the adoption and penetration of mobile phones and broadband in Brazil in during the past 13 years. These graphs show the typical “S” shaped cumulative adoption pattern. Both technologies get off to slow beginning but then the number of adopters increases at an increasing rate. As these markets mature, one would expect the rate of adoption to slow. The success of these technologies, despite the relatively low income levels in Latin America is based primarily on the decreasing costs of technology. This reinforces the importance of making WiMAX a cost effective means for providing mobile broadband.

The success of Grameen Telecom’s Village Phone program, provides a fascinating case study on how businesses can be successful selling technology products in the developing world (Richardson, Don, Ricardo Ramirez, and Moinul Haq. Grameen Telecom’s Village Phone Programme in Rural Bangladesh. Case Study, Guelph Ontario, Canada: Government of Canada, 2000.) In short, Grameen Phone Ltd. is a for-profit mobile phone network operator. The company sells mobile phones and minutes to low-income individuals who then use the phone to provide mobile phone service to other customers. The phone owners earn revenue by selling access to the phone and pay the costs of buying airtime from Grameen Telecom. The program began in 1995 and by 2004 had more than 110,000 village phones in operation and 239 million subscribers. In 2004, the company’s net earnings were over $100 million (Grameen Phone, Ltd. ANNUAL REPORT 2004. Annual Report, Grameen Phone, Ltd, 2004.). One of the biggest drivers of the success of the program was the benefits generated for consumers (Enriques, Luis, Stefan, Schmitgen and Sun, George. "The true value of mobile phones to developing markets." McKinsey Quarterly, 2007: Web Exclusive, February.). A report for the Canadian International Development Agency stated:

The consumer surplus for a single phone call from a village to Dhaka, a call that replaces a physical trip to the city, ranges from 2.64% to 9.8% of mean monthly household income. The cost of a trip to the city ranges from 2 to 8 times the cost of a single phone call, meaning real savings for poor rural people of between 132 to 490 Taka ($2.70 to $10 USD) for individual calls. (Richardson, Ramirez and Haq 2000)

One analogous business idea for a WiMAX operator would be to launch a “Village Laptop Program.” Low income individuals could purchase inexpensive WiMAX enabled laptops and network access for a WiMAX operator. The individual would then be able resell access to customers for a profit – almost like a mobile internet café. While this idea does have promise, there are several key differences between this concept and the Village Phone that would need to be addressed.

First, the Village Phone program was successful at least in part due to a cost savings for GSM over substitute technologies. Connections to the terrestrial phone network through new land lines or even via Wireless Local Loop were artificially limited by outdated government regulations and legacy contracts with other phone service providers (Richardson, Ramirez and Haq 2000). As described above this cost advantage was especially important in the low-income, price-sensitive Bangladeshi market. Additionally, the Village Phone program was able to leverage the existing network of the Grameen Bank microfinance organization to both distribute consumer hardware and collect payments for both airtime and hardware. Grameen Bank managers select candidates to own and operate village phones. Bank employees then administer the microloans to buy the equipment and pay service charges. This helps keep SG&A and non-compliance costs low for Grameen Telecom and increases the addressable distribution area. Lastly, many Village Phone customers were likely more familiar with phone technology than similar customers would be with internet and computing technology. Success for the Village Laptop program would require an aggressive consumer education campaign to communicate the benefits of using internet applications. Even with these caveats, a Village Laptop business using a WiMAX network still has potential in Latin America. Given the potential social benefits that such a program could bring, it is likely that the Grameen Bank or a similar microfinance organization would be willing to form a partnership to add additional value to the venture.

Conclusion

WiMAX, as a new technology faces many questions surrounding its financial return for mobile network operators in Latin America. The benefits that a WiMAX network can deliver will depend greatly on a myriad of factors. These include, the types of complementary products that are developed and the introduction of competing technologies. Just as important are the costs associated with building and operating a WiMAX network. The technology continues to develop and there is a critical need to understand the break-even points for network operators facing a diverse array of deployment options. Finally, consumer adoption is always difficult to predict with new technologies and with products in the developing world. However, we do have a cache of tools, including product development roadmaps, empirical studies and business cases to help provide guidance. Hopefully, using these tools and new information available on WiMAX, we can understand the magnitude of the opportunity this technology presents to the world.

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[1] Numbers are as of 2005 and before adjustment for purchasing power parity. With PPP adjustment Nicaragua’s GDP was $3,674 and Mexico’s was $10,751.