Accelerating affordable smartphone ownership in emerging markets JULY 2017 GSMA Connected Society & Connected Women Dalberg Global Development Advisors ACCELERATING AFFORDABLE SMARTPHONE OWNERSHIP IN EMERGING MARKETS ACCELERATING AFFORDABLE SMARTPHONE OWNERSHIP IN EMERGING MARKETS CONTENTS About the GSMA The Connected Society programme works with the mobile The GSMA represents the interests of mobile operators industry and key stakeholders to improve network coverage, worldwide, uniting nearly 800 operators with more affordability, digital skills and locally relevant content, in Executive summary 2 than 300 companies in the broader mobile ecosystem, pursuit of the wider adoption of the mobile internet. Key findings 8 including handset and device makers, software companies, equipment providers and internet companies, For more information, please visit Background 10 as well as organisations in adjacent industry sectors. The www.gsma.com/mobilefordevelopment/programmes/ GSMA also produces industry-leading events such as connected-society Understanding smartphone affordability 16 Mobile World Congress, Mobile World Congress Shanghai, The cost of smartphones and the purchasing power of low Mobile World Congress Americas and the Mobile 360 [email protected] and middle income groups 30 Series of conferences. Models for increasing affordable access to smartphones 40 For more information, please visit the GSMA corporate website at www.gsma.com Follow the GSMA on Twitter: Archetype I: Direct payment 44 @GSMA. Archetype II: Asset financing 53 Follow the GSMA on Twitter: @GSMA Archetype III: Third party payment 56 About the dalberg group Dalberg is a collection of impact driven businesses seeking Case studies 60 to champion inclusive and sustainable growth around the Copia: Mobile catalogue shopping for the rural base of the pyramid 62 world. Dalberg enterprises work together to attract and develop the best and brightest leaders to work across Vodafone India's Smart Snehidi: Working with an established NGO to expand a range of complementary business models focused on access to smartphones among women 68 About Connected Women: having impact at scale. Learn more at: www.dalberg.com Sonata Finance: Microfinance supporting women’s access to smartphones 74 GSMA’s Connected Women works with mobile operators and their partners to address the barriers to women About dalberg global development advisors Mobisol: Alternative credit assessment and rent-to-own models for smartphones 80 accessing and using mobile internet and mobile money Dalberg Global Development Advisors is a leading strategy services. Together we can unlock this substantial market and management consulting firm whose mission is to Emerging recommendations 86 opportunity for the mobile industry, deliver significant mobilise effective responses to the world’s most pressing Appendix 94 socio-economic benefits, and transform women’s lives. issues. Dalberg Advisors supports leaders across the public and private sectors, helping governments, foundations, non- A. Selection of business models for affordable Smartphones 96 governmental organisations, and Fortune 500 companies address global challenges and realise opportunities for Archetype I: Direct payment 96 growth through 17 offices worldwide. Archetype II: Asset financing 100 Archetype III: Third party payment 104 B. Additional insights – barriers that influence access to the internet and smartphones 106 This document is an output from a project co-funded by UK aid from the UK Government. The viewers expressed do not C. Research methodology 108 necessarily reflect the UK Governments official policies. D. Definitions 110 E. List of acronyms 110 This report was authored by Madeleine Karlsson, Gaia Penteriani, and Helen Croxson (GSMA), and by Alexandra Stanek, Robin Miller, Darshana Pema and Fadzai Chitiyo (Dalberg Advisors). F. List of tables and figures 111 ACCELERATING AFFORDABLE SMARTPHONE OWNERSHIP IN EMERGING MARKETS ACCELERATING AFFORDABLE SMARTPHONE OWNERSHIP IN EMERGING MARKETS Executive Summary Global adoption of smartphones has grown at an extraordinary pace: today’s circa 4 billion smartphone The ability to purchase a smartphone varies widely within low-middle income groups. The research suggests connections are nearly double the figure of three years ago.1 This increase in smartphone ownership2 has been four primary customer segments related to people’s level of affordability:12 fundamental for enabling many people’s first internet experiences, and has offered them a gateway to enter the digital economy and benefit from life-enhancing opportunities. We have seen rapid mobile internet adoption 1. Beyond their means: primarily comprising of the extremely poor, often with no reliable income source, this particularly in emerging markets, where an internet-enabled handset can signify the only form of internet access, group needs to make major trade-offs in household expenditure to afford even a basic internet-enabled and the number of mobile internet connections is approximately three times higher than fixed-line internet.3 handset. Smartphones are not affordable for this group. 2. Cannot afford to pay for a smartphone upfront, but could afford paying in instalments: comprising of the Smartphone uptake across and within regions and markets is not balanced, risking leaving large population working poor, this group finds it difficult to adjust household expenditure to purchase smartphones through . Eastern Africa and South Asia are the regions lagging behind the groups without the means to come online upfront payments. most, with smartphone adoption levels as of mid-2017 at 25% and 30% respectively - much lower compared to the global average of over 50%.4 A major contributing factor to this inequality is the high rate of poverty. South 3. Can save to pay for a smartphone: this group consists mainly of people at the higher end of the low-income Asia and Sub-Saharan Africa are home to the majority of the world’s poor people. Consumer research shows how segment. Individuals have the ability to save over time to purchase a smartphone. the cost of an internet enabled handset is a critical barrier to using mobile internet for low and middle income 4. Can afford lower priced smartphones through a lump sum payment: this group comprises of middle income 5,6 consumers in emerging markets. India is a clear example of this, where over half of the population live in customers, typically with a reliable source of income. Members of this group are usually price conscious but 7 multidimensional poverty and where an average priced smartphone can cost up to 16% of income for poor and have some flexibility to pick and choose among devices. low income groups.8 We estimate that over 134 million people in India are unable to afford one of the cheapest internet-enabled handsets on the market, because it exceeds an affordability threshold at 5% of income.9 Although smartphone prices are projected to decrease in emerging markets, prices will not drop low enough to accelerate There is ample opportunity for the mobile industry and ecosystem players to improve smartphone ownership among the underserved, including low-income groups, women, and rural populations in the near future. affordability among these consumer segments. Through investigating 30+ business models across Sub-Saharan For example, the 2017 average smartphone prices in Kenya and India of circa $118 and $115 respectively, are only Africa, South Asia, and Latin America, three overarching models with different approaches to reducing consumers’ expected to drop to $109 and $97 by 2020.10 smartphone ownership barriers, with a focus on affordability, were identified. Beyond income levels, there are multiple supply and demand side factors influencing smartphone affordability. On the supply side, the manufacturing costs of the device itself are largely dictated by prices of key 1. GSMA Intelligence. 2017 components including: the screen, chipset, memory and battery all of which fluctuate in line with higher 2. Although consumers can gain access to the internet also on feature phones, such models are not offering the ability to use more sophisticated mobile spec requirements, limited availability, and regulations.11 In the inbound supply chain, import duties and taxes applications and have a limited browsing experience, as compared to using smartphones with more advanced operating systems. With this in mind, the imposed on smartphones are significant contributors to total costs, as well as transportation charges that can be end-goal should be to bring people online via smartphones, in order for them to reap the full benefits of connectivity. particularly high in emerging markets. Inefficiencies in the outbound supply chain drive up costs, as devices often 3. ITU. “Global ICT Statistics”. 2014 pass through a number of supply chain players before reaching end consumers. Distribution channels, particularly 4. GSMA Intelligence. 2017 to rural consumers, are often inadequate, either not providing easy access to smartphone retailers due to location 5. It is important to note that smartphone affordability is one barrier to ownership amongst several. Additional barriers include: lack of digital skills, cultural values/social norms, safety concerns, mobile data costs, among others. Efforts of making smartphones affordable on their own will not solve (distance from urban centres), or forcing consumers to pay a high marginal premium to a local independent dealer all access issues. who is incurring