Mobile Phones, Prosperity and India

Many years ago, one evening I was waiting for an advocate in his residence in Salt Lake City, Kolkata. Suddenly, his young daughter came in the room and started talking on phone. She continued talking even after her father came in and we started discussing the legal matters for which I had gone there. I must have taken an hour, but the girl was still talking. And as I could overhear, it was all about the class, teachers and friends. In those days, normally there used to be only one fixed line receiver in a middle class family. I wondered how the advocate allowed her to talk so long,, as the phone used to be quite costly those days. It was not only at home but also in corporate offices, we had to maintain a watch on the cost.

In last few years, India has at least sorted out the telecom problem. Telecom services in India are the cheapest in the world. With entry of Vodafone, the price will go further down. At least this is what Arun Sarin promised after the take over of Hutch Essar. Wharton has come out with a paper asking India to emulate what it did for telecom sector.

But more importantly, a study by McKinsey provides correlation of telecom penetration with GDP.

The mobile phone has become a ubiquitous symbol of prosperity in many developing countries. But what is its true value to their economies? McKinsey determined the contribution of both wireless operators and wireless-related companies, such as content providers and handset manufacturers, to the GDP of the three countries. As per the study, auxiliary players contribute nearly as much to the GDP as do operators-in China’s case, twice as much. These numbers, however, exclude the benefits that mobile phones bring to their users-say, from saved time. Here is the way McKinsey arrived at that figure-the end-user surplus.

We had to calculate the average revenue per user (ARPU) at the time a handset is purchased, starting with the first handset bought in each country. We used these numbers as a proxy for the value users place on their phones and assumed that it doesn’t change over time. By subtracting the contemporary ARPU figures from the historical one (ARPUs fall as subscriber levels increase), we could estimate the current end-user surplus for each country. The value was considerable: around $4 billion for both India and the Philippines and $37 billion for China in 2005.

Although our figures are approximate, they are probably conservative because they don’t reflect advances in the coverage and quality of network services, which would raise the value. In a parallel exercise, we surveyed more than 600 workers in China who travel for their jobs: taxi drivers, plumbers, and salespeople, for example. Mobile phones, we found, offer these workers timesavings of nearly 6 percent-a productivity gain worth some $33 billion in 2005. Part of the value of these gains goes to operators as service fees, and workers hold the remainder as part of their end-user surplus.

By promoting the use of mobile phones, regulatory and industry players can amplify such gains, as well as the contributions that wireless industries make to GDP. In fact, although wireless had an impact on the GDP of each country, the differences among them correlated strongly with penetration: from 2 percent of GDP in India, where penetration was lowest, to roughly 5 percent in China and 7.5 percent in the Philippines, where it was highest. For India, we forecast that a 10 percent increase in penetration would add $2.3 billion to the end-user surplus and a further $6.2 billion in operator revenues.

In India, the number of phones has soared from 83 million in 2004 to 200 million today, teledensity of about 18 phones per 100 people, with mobiles outnumbering fixed line by 4 to 1. India will have 250 million mobile phones before 2007 is over. Telecom companies are eyeing 400 million phones by 2010. In mobile subscribers, India now ranks fourth behind China, USA and Russia. However, the penetration of mobile in rural India is still low because of the basic infrastructure. Telcom operators must go for outsourcing and sharing of the facilities in the interest of the people. With better connectivity, more and more skilled people in rural India will start contributing to the GDP.

I am sure the mobile phones have added to the productivity and cut down the wasted time. And it has brought prosperity too, as many of the service providers such as the vegetable vendors, or the massage man expressed to me.

However, I still hate the sight of people- men and women, keeping on talking on mobile phone while on morning walk or the ring tones in the cinema halls.

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