World Dialogue on Regulation

Despite the positive benefits telephony can have for economic development, many people in developing nations are held back by a diverse set of factors – such as connectivity in rural locations, duties and taxes imposed by governments, the costs of handsets and the cost of services. Once the hurdle of access to communication is overcome, people in developing nations still have to contend with the costs of services. This paper by WDR partner LIRNEasia examines perceptions of affordability amongst low income telecommunication users in India and Sri Lanka and the effects of changes in service costs on their usage patterns.

Telecom use on a Shoestring:
Expenditure and perceptions of costs amongst the financially constrained

Introduction

It is often claimed that access to telecommunication facilities is a propeller of economic prosperity in developing countries.  Mobile phones in particular are considered pivotal in encouraging growth.  Prahalad (2004), in Fortune at the Bottom of the Pyramid asserts that defining change in the world’s poorest economies will be led by access to communications and not through the evolution of IT as was the case in the advanced countries of the world.  A study by the London Business School has also found that, in a typical developing country, an increase of 10 mobile phones per 100 people would boost GDP growth by 0.6 percentage points (Waverman et al., 2005).  However, despite the positive benefits of telephony, many people in developing nations are held back by a diverse set of factors – such as connectivity in rural locations, duties and taxes imposed by governments, the costs of handsets and the cost of services. Once the hurdle of access to communication is overcome, people in developing nations still have to contend with the costs of services.  Usage costs can play a large role in determining the purposes for which, and the frequency with which, people use their phones.

This paper examines perceptions of affordability amongst low income telecommunication users in India and Sri Lanka and the effects of changes in service costs on their usage patterns.

Affordability is a problematic term, and Milne (2003) points out that though “intuitively we all know what affordability means, it is hard to pin down objectively because of variations in people’s needs as well as resources and poor correlation between affordability and acquisition. Affordability includes elements of ability to pay a price without suffering hardship and the degree of need for what is bought. It is widely accepted that basic telecoms should be affordable, but what this means in practice is rarely defined (far less measured)”. 

The findings are based on a survey conducted in India and Sri Lanka, and use the above definition of affordability. This survey focused on a number of telecommunication related issues pertaining to the ‘financially constrained’ – here defined as those earning less than approximately USD 100 a month.  The survey was targeted only at people who had used a telephone within a period of three months prior to the launch of the survey.  Therefore, access to telecommunications was assumed in all of the respondents – either through a self/family owned phone or through a third party’s phone.  Responses were obtained from users of all three major forms of communication – public access phones,  fixed lines and mobile phones.  This paper examines the results of two questions that were included in the survey –

a) How expensive do you find the cost of using the phone that you use in general?

Respondents were asked to indicate whether the costs were (i) extremely high, (ii) very high, (iii) high or (iv) affordable

b) If the cost of using the phone that you are using was reduced by half, how would you change the usage of your phone in general?

Respondents were asked to indicate whether they would (i) make twice as many calls, (ii) spend twice as much time talking, (iii) make twice as many calls and spend twice as much time talking, (iv) increase usage in general or (v) not change usage.

In order to understand the responses to these two questions, this paper considers the following aspects:
a) The modes of communication used by the respondents
b) The benefits received through access
c) Respondents’ monthly communication expenditure

Comment on this research at the LIRNEasia website.