FACULTY OF ARTS, COMPUTING, ENGINEERING AND SCIENCES
BROADBAND INTERNET ACCESS IN DEVELOPING WORLD ECONOMIES:
AN INVESTIGATION OF THE FACTORS AFFECTING VIABILITY
|Chapter 3: Rationale for the research and methodology|
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The previous chapter finished with the summary of the research question, “What are the key factors that affect the viability of an Internet business in the developing world?” This chapter explains the observations and rationale that led to the formation of a proposed business model which might be viable in a developing world context. Since the case study business was set up using this model, the discussion progresses to the factors by which its viability could be observed, tested and measured, with a view to drawing conclusions which may be able to contribute towards the prediction of viability in other situations.
The inductive process of developing a proposed business model
The author has substantial personal experience in the I.T. and data communications industries in senior commercial management, business ownership and consulting roles. For more than a decade, he has worked around the intersections of I.T. / data communications, business management and entrepreneurship in the developing world, visiting about 50 countries. This exposure has enabled some close quarters observations of failing projects and enterprises as well as ones that succeed. There follows a description of the observations and inductive process which informed the formulation of the proposed business model that is later tested in this research.
You can’t buck the market
One can observe a relationship between the extent of external intervention and ongoing sustainability of projects. A specific example is the fashionable emphasis on trying to bring improved telecommunications to very poor rural areas. During this research, it has not proven possible to trace the origin of this idea. One suspects that the originators did not understand that the total economy of an African country like Chad (population approximately 10 million according to The World Factbook, 2006) is “smaller that that of a town like Shrewsbury.” (Harford, 2006) For those unfamiliar with Shrewsbury, it is a town of about 70,000 population on the rural borders of England and Wales. The costs per subscriber of providing communications to remote areas are higher, due to additional power engineering requirements, transport costs, longer cable runs, etc. Meanwhile the revenue potential from poor remote areas is lower than in the richer suburbs and cities. In countries where the market has only provided low levels of connectivity in major cities (International Telecommunications Union, 2003), the degree of financial intervention necessary to achieve good rural connectivity is likely to be high. In can therefore be argued that a rural communications enterprise cannot, under these conditions, be financially viable. Yet development projects persist in trying because the rural development objectives seemed worthy, because a linkage between telecommunications (especially Internet) connectivity and development has become accepted as fact. A section from the objectives of the United States Agency for International Development (USAID) Leland Initiative bears this out: “The Internet is emerging as a low cost pathway that allows information to be more accessible, transferable and manageable; ready access to information is becoming the catalyst that transforms economic and social structures around the world and supports fast-paced sustainable development.” (USAID, 2001)
In pursuit of “sustainability” (discussed in the literature review), it seems that there is a perpetual single-loop learning process going on, (Argyris and Schon, 1978). Minor input changes are being made to a system, expecting major changes to the outcomes. A double-loop learning perspective would postulate that fundamental changes are necessary to achieve a viable enterprise. In other words, in a phrase attributed to Margaret Thatcher, “you can‘t buck the market.” (Walden, 2002). Costs have to reduce and/or higher revenues must be realizable for viability to come within reach. Thus viability and intervention through substantial subsidy are believed to be mutually exclusive.
The first induced conclusion from the above is that a viable Internet business model should be designed to work within the existing market rather than seeking to overcome market forces. Western governments may be able to afford interventions which might change markets. Local entrepreneurs may not be able to. It is by no means certain that the $15 million budget of the above mentioned Leland initiative substantially achieved its objectives. The second related conclusion is that the accessible market needs to be sufficiently large and sufficiently affluent to provide adequate revenues to make a business viable. The research will attempt to explore this subject.
A market approach to development is not a new idea. The idea of making small loans allowing people to start their own micro-enterprises was first developed by Muhammud Yunus, an economics professor at Chittagong University in Bangladesh. His first experiment started over 40 micro-businesses with a total capital of $27. (Yunus, 2003). He went on to found Grameen Bank, which has lent more that $5.1 billion to 5.3 million people. (Ganjemi, 2005) A whole microfinance industry was spawned. “According to the 2005 State of the Micro-credit Summit Campaign Report. As of Dec. 31, 2004, some 3,200 micro-credit institutions reported reaching more than 92 million clients.” (Ganjemi, 2005) This approach has also been extended to communications businesses. Grameen also established Grameen Phone in partnership with Nortel Networks Ltd, bringing GSM telephone services to over 200,000 Village Phone subscribers (Grameenphone.com, 2006). While broadband Internet provision would not fall within the scope of microenterprise, it is believed that a subsidy free business stands a good chance of sustained viability in the developing world so long as the business model is appropriate.
GANGEMI, J (2005) Microcredit Missionary Business Week 3965, p20-21
GRAMEENPHONE.COM (2006) The Village Phone [online] Last accessed on 9/13/2006 at URL:http://www.grameenphone.com/modules.php?name=Content&pa=showpage&pid=3:11:1
HARFORD, T. (2006) The Undercover Economist. Little, Brown. London
INTERNATIONAL TELECOMMUNICATIONS UNION (2003) Digital Access Index [online] Last accessed on 9/14//2006 at URL:http://www.itu.int/ITU-D/ict/dai/index.html
USAID (2001) Leland Initiative: Africa GII Gateway Project [online] Last accessed on 9/13/2006 at URL: http://www.usaid.gov/regions/afr/leland/project.htm
WALDEN, B (2002) Not while I'm alive, he ain't - Part 4 [online] Last accessed on 9/13/2006 at URL:
WORLD FACTBOOK (2006) Chad[online] Last accessed on 9/13/2006 at URL: https://www.cia.gov/cia/publications/factbook/geos/cd.html#People
YUNUS, M (2003) Banker to the poor: Micro-lending and the battle against poverty. PublicAffairs
Edited by the author for the web.
© Copyright, 2006 Rob Longhurst (firstname.lastname@example.org)