The Internet is an essential part of daily life. It allows access to job applications, financial services, and pertinent government information. In fact, studies have showed that internet connectivity increases opportunities for education, gender empowerment and economic growth.
Yet four billion people lack access to the Internet.
Major corporations are brainstorming large-scale methods to connect the “next billion” of the unconnected four billion—the world’s growing middle class. Yet the world’s most disadvantaged billion, the “last billion,” is largely overlooked in these schemes. The last billion often reside in the most remote areas of the world that traditional telecoms struggle to reach. The lack of access is causing a digital chasm between the connected and the unconnected, and it is set to further disadvantage this underserved population.
mSTAR examined solutions to increasing internet connectivity in the report, Business Model’s for the Last Billion: Market Approaches to Increasing Internet Connectivity, and discovered emerging business models connecting the last billion. The report will be launched on May 24th at FHI 360.
The report was founded upon a belief that access to the internet should be affordable and available to everyone.
The value of the social, political and economic gains offered by internet connectivity have been well-documented. Seemingly every day, the myriad of ‘digital’ dividends that can be realized through increased connectivity – individually, locally and globally – transform and grow. At the same time, connectivity offers significant near-term financial dividends for a host of commercial service providers and their investors.
With these financial dividends as motivation, the telecommunications industry has brought 3.5 billion people online. Unsurprisingly, telecoms have received substantial returns (on the order of trillions of dollars) investing in appealing and reliable markets. But they are not reaching a large percentage of populations at the base-of-the-pyramid that stand to benefit substantially from internet connectivity. While eight out of ten people in the developed world have internet access, only one out of ten have access in the least developed countries.
Yet this digital divide is not only quite stark, it is actually growing.
In many cases, donors and development actors have found one-time, on-the-ground solutions for providing connectivity to communities that telecoms have not reached, whether for disaster response, security or livelihood development. However, a long-term and sustainable solution to enabling internet access for the four billion people that remain offline requires the promise of financial dividends for traditional telecoms or new entrants operating in these markets.
The good news, and the not so good news.
There are a multitude of reasons why individuals are not online, but the barriers posed by basic access and affordability are major contributors. The development community has been proactive about this issue: they’ve renewed existing commitments and launched initiatives dedicated to addressing various aspects of these barriers to extend connectivity. When this assessment began last fall, the United Nation’s Sustainable Development Goals had just enshrined the importance of universal and affordable access for the world’s least developed countries and the key role it can play across development, including women’s empowerment. Among donors, Global Connect, Connect 2020, the Global Broadband and Innovations (GBI) Alliance, the Broadband Commission for Digital Development, and the Alliance for Affordable Internet are but a few examples of the important work already being done in this space. In recent years, a noticeable set of new champions has emerged from the private sector as well: the tech giants.
As large multi-national corporations look to expand markets for advertising and gather data on nearly all market segments, efforts to connect developing markets have moved beyond the realms of CSR budgets to the realm of engineering dream teams and newsworthy technology endeavors. The field is inundated with announcements on various ‘moonshot’ technologies that aim to overcome barriers of geography and (hopefully) drive down costs. Balloons. Drones. Cutting-edge satellite technology. Large and small, high and low. These efforts seek to provide universal connectivity in awe-inspiring places and mind-boggling arrays. Closer to earth, equally impressive initiatives like Project Link or Terragraph are a testament to the investments large firms are making in urban markets. In addition to these high-profile efforts, a multitude of other inventive methods for extending connectivity abounds: license-exempt solutions, mesh networks, local caching and dynamic spectrum switching keeps Techies buzzing. There is a seemingly endless list to work-around solutions. All of these efforts are exciting to follow, but how will they work in real-life and reach rural lower-income populations at lower price points? Can they be paired with business models that truly offer low-cost connectivity?
Telecoms have been honing their business models for the last several decades to serve the largely urban middle-to high-income segments of the world population. Mobile network operators (MNOs) in particular have been innovating through dynamic pricing and improved terrestrial technologies. However, these models remain noticeably bilateral – provider to consumer – and despite requirements to reach rural communities, the focus on high-revenue markets shows little signs of changing. While the challenge these traditional providers face in reaching low-income populations are complex, one monolith dominates: profit. Low costs and high volume are key to financial dividends at the base-of-the-pyramid. That does not bode well for a service dependent on infrastructure requiring large capital investments and high operating costs. These costs are only compounded by the need to reach wider geographic areas to attain large consumer bases.
MNOs have found ways to improve fiber backbone infrastructure technology and drive down infrastructure costs. Tower-sharing, tower management companies, solar technology, software solutions and mobile virtual network operators (MVNOs) are just a few. Yet these still remain incredibly high cost, particularly in rural areas with widely dispersed populations. The low spending power of base-of-the-pyramid consumers does not balance the other end of the equation. Layer this onto additional challenges: unfavorable business environments, licensing fees and taxes, low knowledge on services desired at base-of-the-pyramid markets and household income elasticity, and prices only go up. Universal Service Funds and Private Public Partnerships, although successful in some contexts, have to date comprised the exception rather than the norm, and industry alliances tend to focus on responding to challenges faced with their existing high-revenue markets such as data overload.
Moving the market approaches forward.
The understandable limits of prevailing telecom business models in reaching the most disadvantaged populations presents those committed to universal connectivity with a dilemma that alternates between perplexing and frustrating. Committed development actors, now joined by large corporations, are determined to close the digital divide and achieve connectivity for the base-of-the-pyramid. This assessment sought to move this conversation forward by examining existing or potential business models that can extend connectivity to the lowest income consumers in a financially sustainable way. By tackling these important questions and providing concrete recommendations for next steps, it is hoped that that for-profit companies, development actors, foundations and governments can work collaboratively to make affordable connectivity a reality for everyone.
Entrepreneurs who have spearheaded models for connectivity in the world’s most challenging environments, and investors who are backing them, will be speaking at our May 24th report launch. Register to attend and learn how these innovative models are connecting the last billion.
Follow the conversation on Twitter at #ConnecttheLastBillion.
Hannah Skelly is a member of the mSTAR project at FHI 360. She has worked with donors across a spectrum of development fields over the last nine years, including education, health and conservation. New to the techie field, (and under the initial impression that WiMAX was a laundry detergent), she is learning the benefits, and potential pitfalls, of using ICT tools in development everyday. Hannah has an MA in Development Economics from the Fletcher School of Law and Diplomacy at Tufts University and a BA from Emory University.