Micro Telcos - Business Models for Rural Access?

This month's Technology Salon approached last-mile connectivity problems from an entrepreneurship standpoint. What are the barriers to creating small, possibly local-only telcos using various technologies, and how can those scale through investment, international development assistance, or franchising?

The on-the-ground situation is good connectivity in urban and peri-urban areas, often including land-line support as well as mobile coverage. As you get further out into rural areas, coverage dwindles; without populations large enough to support (currently) the cost of installation and maintenance of a cell tower, the large firms are not interested. The telecom industry is often dominated by 3-4 large companies, often heavily regulated and/or in cahoots with the government.

We're taking as a given that communications are essential to further economic development, sustainable local development, and that access (be it voice-only, voice + SMS, or ideally full Internet access) is a, if not "the", best tool for communities to help themselves, and create a self-determined path to prosperity. (Of course, there's also a risk of being overwhelmed by the firehose of the culturally and morally diverse full force of the Internet, but it seems unlikely that any community will jump straight from zero to broadband, everyone's-connected status overnight).

Rural areas in the United States encountered similar problems during our own roll out of telecommunications, and created rural telcos at first, and eventually were connected thanks to the Universal Service Fund. The Fund model was often suggested as a path forward for expanding rural access; as was simply requiring rural access as part of the licensing requirements with the government.

We see in the wild today many pilots and entrepreneurial attempts to bridge this gap, from the Grameen Village Phone style projects (which help if there's cell coverage but no cell phones) and more ambitious (and expensive) WiMax in Vietnam; but none of the micro-telco projects has fully caught fire and scaled up or spread out where there is no infrastructure available. As the hardware prices and complexity drop, it seems like there should be some business plan that could provide connectivity and be a good business for a local entrepreneur.

Costs and compatibility are one problem - the cheapest wireless handsets by a wide margin remain GSM cellphones, with wifi and WiMax phones trailing behind. The wifi/wimax systems are easier to put together for a local phone system, but GSM phones are cheaper and could integrate better into existing telco networks over time. Regardless of the handsets, the backhaul system remains expensive and requires either scale or other paid services to link a rural telco to the national system.

Other barriers are more business-model related than technical, involving government regulations and competition from the large telcos. Once a micro telco has grown to achieve a sustainable scale that could spread, the government or the existing companies (or both) step in to regulate, tax, block and/or compete.

Competition from the large telcos still provides the community access, but impedes the spread of the franchise/entepreneural idea. The business model is less attractive to other entrepreneurs if its success also means its impending doom, with a short timeframe to recover the original equipment costs before loss-leading competition, or rent-seeking regulation, shows up.

The ability for the business model to scale through spread (not just size) is critical to continuing to expand access into underserved regions.

There are a few ways that Micro Telcos could continue to provide value even after large telco GSM rollout in an area; making them more attractive business models to adopt (and spread).

Once their program has proven the demand and brought in a large telco, the microtelco could sell its userbase to the larger business and invest in value-added services using the presumably more reliable access that the large telco brings to the area. This could be moving to providing local data services, cybercafes and training/workshops on relevant local usage scenarios for those. If the micro telco was constructed using mostly mobile or transportable technology, it could move further out to stay ahead of the connectivity wave. It's likely that the microtelco will have already built out additional features for no other reason than to be profitable in an environment where a large telco won't (or can't) be.

This helps co-opt the large telcos and involve them rather than competing with them; and absorbs the risk of expanding into rural areas. At the same time, this avoids the problems of the business model of providing intentionally lesser service to rural subscribers; namely making it clear that rural subscribers are of less value than their urban counterparts. Their initial service may in fact be less reliable, but it will be locally operated during the proving phase, and hopefully upgraded and improved over time.

There is no clear path forward for micro telco success. Much depends on the local government and existing large telco providers, as well as demand and constantly-changing technology prices. The ongoing task for now is finding and sharing business models that are showing success and gracefully managing the transition to working and/or competing with large telcos.

Check out another writeup back at TechnologySalon.org

Comments

What happened to WiMax? Shouldn't that be the killer for the last one mile?

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Peter

i think that rural areas will have to wait a little longer, it is just a huge undertaking to connect these people on the outskirts of the big cities.