23 August 2019

Telecom firms and manufacturers are targeting Africans on low salaries with ‘affordable’ phones. Robert Shepherd asks how they plan to do business with people on low incomes.

Having a smartphone is something most people in the developed world take for granted, but in many parts of the planet they still remain unaffordable for hundreds of millions of others.

Earlier this year, French mobile operator Orange announced its plans to remedy the situation by launching its 3G Sanza “smeature” (a portmanteau of smart and feature, in case you hadn’t noticed) phone, using KaiOS Technology’s operating system. It retails at around $US20, depending on the African territory one lives in.

Yet, while it’s all very nice for big corporates to say they are helping those who have small incomes, by nature they’re are not driven by altruism. To most of us they’re cold-blooded businesses out to make as much money as they can. So, what gives?

“Orange has been tailoring its device portfolio for the African market for many years now and feature phones have been a natural fit for this market that requires low-cost handsets and low data costs,” says Bernard Mazetier, marketing director, MEA major programmes, Orange MEA

Indeed, more than 60% of the African market is still feature phone oriented, according to market intelligence, International Data Corporation (IDC).

Mazetier points to the fact that these include devices and bundles like the Orange Klif (2015) “where we were the first operator to launch a communication bundle for a fixed price of US$40 with a bundle of voice, data and text included”. Orange also launched the Orange Rise 31, a partnership with Google, in 2016.

There’s no question that Orange has cornered much of the African market – especially the French-speaking one – but where does it go from here?

“While there is a growing market for smartphones, we however see a need in this market for phones which have the attributes of feature phones such as long battery life but which have the extra benefits of apps and other smartphone-like features such as voice-activated functionality, through Google Assistant and internet browsing,” Mazetier continues.

Josh Gosliner, director of product marketing at mobile financial identity provider Juvo, agrees. “For some people, this this will be the first time they can actually access the internet,” he says. “It’s going to be a chance to use Facebook and WhatsApp and any of the services that help connect people. It’s also a way in which people can engage in mobile money in a more interactive way. I think there’s a lot of opportunities that open up for people once they’ve got access to the internet and various applications.”

Great news then that the low-income customer will have internet access at the touch of the button, but how will operators make money from potential customers – many of whom earn less than US$20 a day?

“From an operator’s perspective, it is also about the delivery of data and services to our customers, although we have negotiated the price of the handset with our hardware supplier with clear target prices in mind to maintain its affordability,” says Mazetier. “Orange sells the Sanza as a bundle in order to provide an attractive offer and provides the opportunity to our customers to discover the world of internet, social services, video, for example. Orange Ivory Coast has launched the Sanza at the price of US$27 together with the following bundle - 1Gb per month for three months, 15 mins on-net and 100 SMS’.” What’s more, the Sanza comes pre-installed with Orange services such as My Orange (to manage your account), Orange Radio, Orange TV and Orange Money, where available in the country. It also comes with Facebook, Google Maps, YouTube, WhatsApp and Twitter. 

Prima facie it sounds like it’s no different to the archetypal smartphone, but Gosliner says businesses have thought long and hard about how to make the phones affordable.

“A lot of telcos are buying into KaiOS because it allows them to take back more control with regards to how devices are being sold and what devices are being sold to consumers,” he adds. “Especially in Africa, there’s been a flood of inferior devices coming into the market from China, so there’s a need for a more controlled user experience and having devices that at least meet certain thresholds and specifications. If customers are having a bad experience with the phone, like if it’s slow, they’re much more likely to blame the telco than they will the device and that’s what leads to churn and other negative consequences for the telcos.” 

Gosliner says “what’s interesting with KaiOS”, is that it’s taking out what’s most expensive about devices and potentially unnecessary. “None of them have touchscreens, they’re using 9-digit keypads,” he adds. “It’s a really interactive and smart-phone like experience that doesn’t incur the same cost as a full smartphone. There are also web-based apps, as opposed to native-based apps and while that may use some data, it’s taking pressure off the device and putting it onto the network. They’re built around being really lightweight, so they can have a strong experience without having to invest so much into the device and passing those costs onto consumers.”

Mazetier politely declines to comment on anything pertaining to sales figures, but James Moar, lead analyst at Juniper Research, says the challenge will be sustaining the hardware production, as these models are not going to drive high margins. “The vast majority of these phones are being made ordered by operators, with Alcatel, Nokia and Reliance Jio being the biggest exceptions,” he adds. “In this case, the operators need to derive enough revenue to sustain what could be potentially subsidising these phones.”

So, if it’s such a viable model, why isn’t every operator and manufacturer doing likewise?

Well, many of them already are, according to Gosliner. “KaiOS is working directly with manufacturers and we’re also seeing a number of telcos working with manufacturers,” he says. “MTN has announced its partnership with China Mobile to produce the smeature phones it’s selling across the group. I believe the pricing is something like US$30 for a 3G phone and US$40 for a 4G phone. Samsung is trying to get down to the US$100 range, but when you look at some of these KaiOS prices they’re going to be unbranded or branded to the telco. That’s the way in which they can really drive down prices. Another thing on top of that, there’s also an opportunity for telcos to provide subsidies for loyal customers, as well as in some instances to even provide financing. So, it’s not a case of putting down $US40 all at once. It would be more like paying a few dollars every month until you’ve paid off the device.”

In many cases, Moar says, the operators are doing similar things in their own national markets, just for a different audience. “AT&T and Sprint are providing very similar styles of phone to users who aren’t familiar with smartphone technology and/or don’t necessarily have the manual dexterity to handle the devices well,” he says. “For those manufacturers that are focusing on emerging economies, their focus so far has been basic smartphones, which hasn’t been too successful." 

Earlier this year Orange launched its 3G Sanza “smeature” phone, retailing at around $US20, depending on the African territory one lives in

Moar points to Nokia’s Asha range and Samsung’s Tizen phones as examples. He added that several manufacturers only produce smartphones, which limits the playing field immediately. “For those that produce featurephones as well (such as Samsung), there is little incentive to immediately bridge the gap between the two, as they won’t gain much increase in revenue from simple increases in connectivity,” he says. “The biggest winners will be the operators and those who provide their software and services to the end users. Google is getting in on the act indirectly, through the provision of some of its services through KaiOS, but is unlikely to develop the initiative much itself, as it does not rely on Android in the same way that Android One does.”

So, with a number of different companies in the supply chain, who is driving it? “The key is to note that It’s a decision primarily driven by network operators and software providers, not handset manufacturers,” adds Moar. “The ability to get poorer consumers on phones that consume data will increase the ARPU (average revenue per user) operators gain from the poorest consumers, even if it is only a small increase.”

With that in mind, is it akin to the model adopted by Irish fast fashion retailer Primark – “stack them high, sell them cheap”?

“Not at all,” says Mazetier. “This is about the delivery of an affordable device that offers many of the features of a smartphone for a fraction of the cost, whilst offering additional benefits such as long-battery life.”

Moar points out that these initiatives emanate from players who aren’t traditional “big tech” stalwarts, as they have the most to gain from improving connectivity at the lowest levels. “The software is being provided by smaller players (most typically KaiOS Technologies), who wouldn’t be able to compete with Android or iOS elsewhere - and operator ARPU has been declining for years,” he says. “If these phones can give their users the ability to pay for data they will use (rather than not paying for data at all because they can’t afford a smartphone), the operators will benefit.”

However, operators still need to protect themselves and Biju Nair, president and chief executive of mobile device trade-in firm Hyla Mobile says this is where partnerships can be key.

“Operators with a recycling partner can take these older devices,” he says. “Typically, you don’t expect anybody to pay more than US$1 for them, but that’s still a way of subsidising the new phones. So, a US$10 phone comes down to US$8. The operator then says it will generate a certain amount of revenue from these subscribers and so is able to subsidise it further, so the phone comes down to US$6. Then you have to involve governments.”

Still, there’s always a financial risk regardless of which industry you work in and Gosliner says operators are acutely aware of this. “There’s the perception that both mobile network operators and financial institutions tend to have is 70-90% of the population is just not creditworthy,” he adds. “What we’ve been able to demonstrate that there’s a significant percentage of the population that is creditworthy. Customers are being encouraged to increase the size of their basket of goods that they’re consuming, but unless there’s an additional income stream that money has to come from somewhere else.”

Gosliner says one of the concerns the operators have around new devices and device financing is whether it is going to eat into core revenues. “How is the telco going to take somebody who has been using a smeature phone but is only consuming minutes and SMS? How are we going to get them into debt and to start purchasing data?”

He opines that “one of the things we will see” is people moving from minutes and SMS to WhatsApp and becoming more data consumers than anything else. “But, of course, there is a credit risk,” he warns. “However, it’s not about default minimisation, it’s actually about revenue maximisation. So, if you think about a credit card company – if its goal was to have 0% debt it would lend to few if any people. What they do is optimise their model to make sure that they’re expending just enough credit to maximise their revenue. That’s the way the mobile network operators and the banks that are going to be involved in these projects should think about this. If there are more defaults but that means getting more people to use these devices, that’s also an advantage. Everyone involved is making the right move by just running the experiment.”

So, in terms of an entry point, it’s just about as accessible as it can be and it will still be out of reach for some. However, Gosliner says it’s also an opportunity for a lot of people to start entering a space traditionally the preserve of those with more disposable income.

Sanza, just like any smartphone today, comes with Facebook, Google Maps, YouTube, WhatsApp and Twitter readily available for download

“One of the things this can hopefully create is more innovation around applications on the continent,” he adds. “Facebook and WhatsApp were not designed Africa-first and there may be some new mobile apps that come out that are Africa centric and can help people better engage with the formal economy.”

Of course, it’s still early days, but Gosliner says the industry is heading in the right direction and he’s more optimistic about the outcome than he is pessimistic. “It’s a really exciting opportunity and we don’t know how it’s going to play out, but we do know that the market is going to learn from this,” he adds. “Any effort like this is only going to benefit consumers in the long term. I would place the odds more heavily on success than failure.”

In 2008, Orange's slogan, "The future's bright – the future's Orange" was axed after many years by its chief executive officer Tom Alexander in a bid to revive its ailing fortunes. If Sanza comes off, the company might want to re-invoke it.