There is a story in South Africa of a housepainter in a poor township who couldn’t find a job. Travelling everyday was expensive, making the search for work difficult. His solution? Post a sign on the road offering his services and giving his mobile phone number. The result was more work and more income. But more importantly, he has joined an economy that may one day let him get a bank account, get a loan, buy a house, have running water and improve his life. It’s a story that’s at the heart of what the rapid spread of mobile telephony is doing in South Africa.

 

Unlike computers and fixed line telephones, which can widen the digital divide, mobile phones tend to close the gap between rich and poor. That’s critical in a place like South Africa, where there is a stark disparity between the lives of those working in the country’s first-world economy and those left behind in its third-world economy. A Synovate Hotspot report highlighted the trend in South Africa: between 1996 and 2005, mobile phone penetration rose from 2.4% to 41.6%. The report noted that many people are learning to use a keypad for the first time as a result.

 

Leonard Waverman, Professor of Economics at the London Business School, has conducted extensive research into how mobile phones are affecting development. He says the adoption of mobile phones among people who had not been expected to take up the technology has been remarkable in South Africa. These include tradesmen and migrant workers who live in townships and rural villages, many of which do not have mail service. Mobile phones are a cheap alternative to land lines, computers, Internet access and fixed addresses.

 

Waverman says mobile phones give disadvantaged people access to the information necessary to participate in the economy – to their advantage. Beatrice Kubheka, Managing Director of African Response, a Synovate-owned research company, notes that low-income earners are aware of the benefits offered by mobile phones and now see them as a necessity, not a luxury. “The advantages of owning one and the status it affords far outweigh its cost,” she says.

 

That sentiment was borne out by a study by the UK-based Centre for Economic Policy Research in 2005. Researchers found that 62% of small businesses in South Africa increased their profits as a result of using a mobile phone, even though the cost of the calls is higher than on fixed-line networks. Even more telling is the fact that over 85% of small businesses run by black people say they rely solely on a mobile phone for telecommunication. The survey also showed that income, gender, age, education and even the lack of regular electricity supplies do not create barriers to mobile access.

 

 

Container shipping to the rescue

 

In 1994, the South African government stipulated that mobile communications companies had to achieve specific goals for extending network coverage to disadvantaged communities in order to get a license. In 1996, Vodacom, a private South African firm whose major investors include Vodafone, committed to the goals and got a license. The results have been startling.

 

Vodacom set up the Community Services programme. The project helps entrepreneurs start franchised “phone shops” that operate up to five mobile phone lines. Outgoing calls are priced at R0.85 (US$0.11) per minute – less than one-third the commercial rate for pre-paid mobile calls. Many of these franchises are simple affairs that operate out of converted shipping containers, brightly painted with Vodacom’s colours.

 

These phone shops help connect people who cannot afford their own mobile phone, but want the benefits. The project has so far provided more than 23,000 mobile connections in more than 4,000 locations throughout South Africa, exceeding Vodacom’s original targets and greatly contributing to the prevalence of mobile phones. Add to that the tendency of many mobile phone subscribers to share their phones with others, and suddenly the mobile phone becomes a part of everyday life in even the most remote areas.

 

Another positive effect of the phone shop phenomenon is the development of entrepreneurialism in the rural parts of South Africa. While owners of phone shops bear financial responsibility for the franchise, Vodacom provides business training and insights to prospective owners to help them get started.

 

 

Paving the way for investment

 

A big advantage for a developing country that has widespread mobile telephony is that foreign investors seem to like it. A 2005 study on mobile telephone networks and foreign direct investment in developing countries by Frontier Economics, an EU-based consultancy, found that in Sub-Saharan African countries, mobile networks contribute positively to FDI flows – more so than fixed line networks. This is due to the difficulties establishing a fixed-line network compared to mobile network.

 

Fixed-line telephones played a significant role in spurring economic growth in OECD countries in the 70s and 80s. The advent of mobile phones complemented the benefits of fixed-line infrastructure. But in South Africa and many other developing countries, mobile phone networks are leap-frogging fixed-line networks, thanks to the lower cost and greater ease of rolling out a mobile network. Synovate’s South Africa

 

Hotspot report showed that not only has mobile phone access grown sharply in the last few years, but that fixed-line access has actually decreased by 4%.

 

The impact of mobile telephony on developing economies may be as much as twice that of developed economies, according to a study by economists at the University of Toronto, John Cabot University and the London Business School. That truth is particularly valid for countries like South Africa.

 

“Fixed lines can never connect Africa: less than 1% of Sub-Saharan Africa has fixed-line access, 100 years after development of the phone,” says Mo Ibrahim, founder of Celtel. It’s an important insight, since Ibrahim’s firm, a mobile telecommunications company, now operates in more than 15 African countries.

 

In the past five years, Africans have been subscribing to mobile phones at a faster rate than in any other region of the world. In South Africa, Vodacom’s customer base grew 44% between March 2005 and March 2006.

 

Seeing shoppers in upper-class malls clutching the latest mobile phone is not surprising. Seeing farm labourers or construction workers with a mobile phone used to be surprising – but that’s changing. Telecom companies in South Africa are targeting more low-income earners for their subscriber growth. And low-income earners can see the benefits for themselves.

 

Mobile phones are rapidly developing new features and adding capacity, such as Internet access. As costs come down, such phones may soon be in the reach of South Africa’s poor. This means that people from Kyalitsha and Soweto will be jumping on the digital bandwagon alongside people from Cape Town and Johannesburg.