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The Global Adoption and Diffusion of Mobile Phones Kas Kalba December 2008

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The Global Adoption and Diffusion of Mobile Phones Kas Kalba December 2008 PUBLICATION The Global Adoption and Diffusion of Mobile Phones Kas Kalba December 2008 Program on Information Resources Policy Center for Information Policy Research Harvard University The Program on Information Resources Policy is jointly sponsored by Harvard University and the Center for Information Policy Research. Chairman Managing Director Anthony G. Oettinger John C. B. LeGates Kas Kalba, Ph.D., is co-founder and president of Kalba International, Inc., a management consulting and research firm. After building the firm's initial government practice, he went on to develop commercial sector and international practices. He has recently returned to academia, teaching a course on the globalization of communications at Yale University. Copyright © 2008 by Kas Kalba. Not to be reproduced in any form without written consent from Kas Kalba, Kalba International, Inc., 116 McKinley Avenue, New Haven, CT 06515, USA. +1 (203) 397-2199. E-mail: [email protected] URL: http://www.kalbainternational.com ISBN 0-9798243-0-3 P-08-2 ii iii Table of Contents Chaper One: Introduction .............................................................................................................1 1.1 Note on Methodology...................................................................................................... 2 1.2 Structure of the Report .................................................................................................... 4 Chapter Two: Defining and Measuring Adoption .......................................................................5 2.1 Scope of the Report ......................................................................................................... 5 2.2 Defining Penetration Levels............................................................................................ 6 Chapter Three: Phases of Mobile Diffusion...............................................................................10 3.1 Waves of Technology Deployment................................................................................ 10 3.2 Prepaid and the Third Market Wave.............................................................................. 14 Chapter Four: Factors Affecting Adoption................................................................................19 4.1. The Jipp Curve vs. Mobile Adoption ............................................................................ 19 4.2 Income and Disposable Income .................................................................................... 21 4.3 Income Distribution—Early Adoption vs. Mass Market............................................... 24 4.4 Legacy Phone Service ................................................................................................... 25 4.5 Fractional and Seasonal Demand .................................................................................. 31 4.6 Observability and “Trialability”.................................................................................... 32 4.7 Segmentation of Demand .............................................................................................. 34 4.8 Competing Products and Services................................................................................. 35 4.9 Demographics: Age, Gender, and Household Size........................................................ 36 4.10 Usage Levels—How Much Do Mobile Talkers Talk?................................................. 40 4.11 Cultural Norms—Which Country Talks the Most? ..................................................... 41 4.12 The Role of Extreme Climate...................................................................................... 47 Chapter Five : Supplying Mobile Service...................................................................................49 5.1 Investor Initiative .......................................................................................................... 49 5.2 Number of Competitors................................................................................................. 53 5.3 Geography and Political Geography ............................................................................. 58 5.4 Diseconomies of Scale—the Case of Small Markets (and Eastern Europe) ................. 60 5.5 Technology Standards and Innovation .......................................................................... 63 5.6 Prices as Drivers of Adoption?...................................................................................... 68 5.7 Prepaid Phones and Credit-free Calling ........................................................................ 74 5.8 Effects of Asymmetrical Interconnection...................................................................... 76 5.9 Spectrum Auctions and Availability—the 3G Effect..................................................... 78 5.10 Towers, Power, and Security ....................................................................................... 82 iv Chapter Six: Summary and Implications for Adoption Research ...........................................85 6.1 Interaction of Supply and Demand................................................................................ 85 6.2 Early- vs. Mature-Stage Factors.................................................................................... 86 6.3 Lessons of Mobile Phone Adoption .............................................................................. 88 Chapter Seven: Reaching the Next Three Billion......................................................................93 7.1 A Wireless Missing Link?.............................................................................................. 94 7.2 Prices, Spectrum, and Infrastructure Sharing................................................................ 96 Chapter Eight: Concluding Perspective...................................................................................100 Acronyms .....................................................................................................................103 Executive Summary This report assesses the drivers of mobile phone diffusion and adoption across the world.1 It addresses demand- and supply-side factors and provides an outlook on the diffusion process going forward, as mobile networks may accommodate 2 or 3 billion more users in addition to today’s 3–4 billion subscribers and users.2 While offering a general analysis, the report attempts to explain why mobile penetration has been higher in Western Europe than in the United States, in China than in India, and in Eastern Europe than in Latin America. Inputs to the report have included two cross-country databases (compiled by Merrill Lynch and ITU [International Telecommunications Union]), the author’s field studies of mobile adoption in more than twenty countries, and the comments of reviewers of earlier drafts.3 On the demand side the report addresses the role of disposable income, legacy phone service (wireline), demographics, and adoption “observability,” among other factors. It shows that a country’s income level is more closely associated with its mobile adoption level in emerging markets than in developed ones. It also documents the close association of legacy phone connections and mobile phone adoption in emerging markets, including low-income African countries, a finding that runs contrary to common assumptions. The report proposes an “income distribution” explanation of why countries such as the United States and those of Latin America experienced higher mobile penetration in the early stage of the market and why more egalitarian countries, including most of those in Eastern Europe, have had higher adoption levels in the mass market phase. In addition, the report reviews the adoption effects of demographic factors in China, India, and other markets, particularly the role of household size, pointing to China’s smaller households in explaining the relatively fast adoption of mobile phones compared to India. The report also looks at mobile phone usage levels across countries. It concludes that mobile talk time is largely determined by usage prices and not by communication culture, notwithstanding common assumptions to the contrary. Mobile phone users in a culturally mixed group of countries that includes the United States, India, Finland, and Israel—all with very low per-minute usage rates—exhibit the highest usage levels. At the same time, the report recognizes the role of cultural norms and taboos in fostering product innovation, such as i-mode in Japan and SMS [Short Message Service] in the Nordic countries. In addition, it discusses the generally 1 The author wishes to thank Gustave Barth, Rick Costello, Ken Engelhart, James E. Katz, Yasuhiko Kawasumi, Markku Kivinen, Warren Lavey, John LeGates, Wolter Lemstra, Richard Ling, William Melody, Roger Noll, W. Parish, Hector Salgado, F. M. Scherer, Mike Short, Thomas Ronai, and Dimitri Ypsilanti for commenting on earlier versions of this report. 2 This is a general estimate. See Chapter Two for a discussion of issues surrounding the definition and measurement of the number of mobile phone “adopters” at the global level. 3 See footnote 1 above. vi unrecognized role that climate differences may have played in the early stages of mobile phone adoption. On the supply side, the report reviews the role of technology development and entrepreneurial investment as underlying factors in the diffusion of mobile phones and associated services. It recognizes in particular the role of
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