Demerging Emerging Markets

Why It Pays to Adapt Marketing Strategies for Different Territories

By Carsten Brinkschulte, CEO of Synchronica

As the credit crunch continues to dominate headlines in the West, many businesses have looked at the opportunities in emerging markets. In the mobile telecommunications industry, emerging markets are generally understood to include, India, China, the Middle East, Africa, and parts of South America which are experiencing high volume-growth, but with low margins. Because these countries generally have very little wired telecom infrastructure, their adoption of mobile voice services has been much more rapid than that of the West where it took 15 years to reach 25 percent penetration.

In these countries, very few people own a PC while the mobile phone is having a phenomenal success. Countries in Africa, as well as India, are generally made up of rural communities dispersed over a large geographical area where people have to travel long distances to reach their nearest internet cafe to access the internet and check their email. I believe that there is a massive market potential for operators in emerging markets to offer mobile internet and wireless email services. In fact, with the right services enabled on low-cost handsets, I believe that mobile data consumption in emerging markets will outstrip that of the West within the next four years. Operators in these territories have a unique opportunity to promote the mobile phone as the primary device for internet access, replacing the internet cafes, redirecting revenue streams, and retaining customers.

However, there is substantial variance in the regions, and it is important to tailor service to the needs and constraints of the subscriber base in any particular country. Pyramid Research advises that any vendor hoping to sell services into emerging markets needs to understand the differences within those markets. As a vendor of mobile email and data backup services, primarily targeting operators in emerging markets, we were quick to heed this advice.

How Emerging Markets Compare in Their Mobile Consumption

There are already more than 3.5 billion mobile phone subscribers worldwide and, according to a recent report from the United Nations, more than 55 percent are living in emerging markets. Analyst firms including Aberdeen Group, Pyramid Research, and Portio Research predict that by 2011 this number will have grown by a further billion, with 87 percent coming from emerging economies. Of the 30 fastest growing mobile markets, Pyramid Research identified ten within Africa and the Middle East. 35 percent of the next billion subscribers will be from India and China alone.

Informa Telecoms & Media's World Cellular Data Metrics reported that China's consumption of mobile services differs from other emerging markets in that it is spending a lot more on value-added services. Indeed, China Mobile which currently has more than 400 million subscribers generated CNY 91.609 billion (USD 12.272 billion) in revenues from value-added services in 2007. Of the total, 33 percent or CNY 30.256 billion (USD 4.053 billion) were derived from non-SMS services according to Informa.

Interestingly, even considering China's massive growth potential, Pyramid Research predicts that India, the world's second largest mobile market with more than 230 million subscribers, will add the most new subscribers in the next four years. India's Minister of State for IT and Telecommunications recently reported that there are 1.4 million RIM BlackBerry users in India, representing ten percent of RIM's global user base. Operators including Bharti Airtel, BPL Mobile, Reliance Communications, and Vodafone Essar all offer RIM's mobile email service, so there is clearly an appetite for mobile email in this country.

However, RIM's proprietary service does not address the huge number of subcribers that could be using mobile email on low-cost devices, such as the Nokia 1100 which has sold more than 200 million units worldwide. Bharti Airtel alone has more than 50 million subscribers, and this figure is growing at rates of more than two million subscribers per month. An operator that could enable email on all of these low-cost devices, with an attractively priced service plan, will reap huge rewards, even considering the low margins in these territories.

In the telecoms market, it is also important to take account of the regulatory climate country to country. For example, Cuba has only recently allowed ordinary consumers to own a mobile phone. This promises excellent potential in a market not yet saturated with subscribers. However, handsets are still viewed as luxury items, and a GBP 60 mobile phone contract is still the equivalent of six month's wages for the average Cuban subscriber.

In West Africa, while Ghana is celebrating 50 years of independence and is on track to reach its ambition of being a middle income country by 2015, its neighbours, Togo, Niger, Senegal, and Benin have been heavily impacted by rising food prices as a result of bio fuel farming. Therefore, it is important to take account of local economic climates rather than viewing emerging markets as a single entity. Operators in these regions are working on razor-thin margins and will be anxious to keep their costs as low as possible.

How Low Can You Go?

As a mobile service vendor addressing emerging markets, it was crucial for us to tailor our service to the low-cost handset market. Despite all the hype around high-end devices, such as the BlackBerry and the iPhone, the smartphone market continues to represent only a fraction of the global market for mobile phones, in particular in emerging markets. While ABI Research estimates that the smartphone market will grow from ten percent of the total handset market in 2007 to 31 percent of the market in 2013, the market as a whole continues to be dominated by feature phones and basic phones. The world's largest mobile device manufacturer, Nokia, sees most of its growth owing to its increased market share in Africa and India where low-cost feature phones are the default choice for consumers.

It is generally accepted that mobile service providers in emerging markets have to deliver services also, and in particular to low-cost mobile handsets. Consumers are often not prepared to buy new phones just to make use of new services. So vendors need to develop solutions that work within the constraints of the installed base.

ABI research analyst Shaila Pandey predicts that one in every four handsets shipped globally will be a low-cost device retailing for under USD 20. Once again, when talking about low-cost handsets, we must beware of applying Western preconceptions. How do these devices look like? They are most likely to be feature phones without the ability to install additional software, but with the benefit of an industry-standard synchronization and email client built into the firmware of the mobile phone.

Many of the low-cost Nokia and Motorola feature phones that have been specifically designed for users in emerging markets are shipping with SyncML synchronization or IMAP email clients built in. Even the most basic mobile devices, like the Nokia 1110, have support for SMS, and providers that can activate mobile email services using the hardware that is already out there will have a much greater opportunity for mass market adoption.

In response to these market conditions, we recently expanded our mobile email solution Mobile Gateway to include support for basic mobile phones that do not include IMAP clients. By adding an email-to-SMS gateway, we enable operators in Africa and India to tailor their mobile email service to include subscribers using even the most basic mobile phones. In fact, to date we estimate that our service could be accessed on almost three billion mobile phones worldwide.

With our recent acquisition of AxisMobile, we are taking this even further. AxisMobile adds Email to MMS, WAP, and XHTML gateways delivering mobile email to an even wider range of low-cost feature phones. We are currently integrating AxisMobile's technology into Mobile Gateway, aiming for a multi-protocol gateway which will deliver mobile email to literally any device while providing the best possible user experience for every device category.

Keep It Simple

To encourage consumers to use the service, we also made it as easy as possible to setup. We expanded our product to include a WAP signup portal where consumers can register directly from their mobile phone without having to trek to the nearest town to find an internet cafe. We also developed a tool that automatically sets up mobile email services over the air by activating the software that already resides on most mobile phones. This drastically reduces operator intervention and thus the support costs, making our service more profitable for operators in emerging markets.

Most mobile customers in emerging markets have no contract with their operator and use pay–as-you-go services. These pre-pay subscribers traditionally have less loyalty to a mobile operator, so an operator that can offer innovative services, such as mobile email or a network storage and backup service that restores contacts if the phone is lost or upgraded, is more likely to reduce churn. In recognition of their customer base, we also developed a pre-pay billing interface allowing operators to measure and charge for services used, with many opting for flat-rate data plans of around or below USD 3 a month.

Conclusion

As we have seen from the research compiled by analysts Pyramid, ABI, and Portio Research, there is an enormous opportunity for delivering mobile data services in India, China, Africa, the Middle East, and Latin America over the next four years as more than a billion new subscribers join the mobile revolution. Despite the low margins in these countries, the sheer volume of new users means that there is enormous commercial potential. It is my firm belief that the mobile phone will become the primary tool for accessing the internet and email in emerging markets and that mobile data usage will leapfrog that of the West within the next three years. Any vendor that can develop solutions that deliver invaluable communication services to the subscriber base on the broadest range of devices, while reducing support costs and churn, has a very bright future in these markets.

About Synchronica

Synchronica plc develops and markets mobile email and synchronization solutions for mobile operators and device manufacturers. Products include the award-winning push email and synchronization solution Mobile Gateway and the device backup solution Mobile Backup. Based on industry standards, Synchronica can reach the built-in email and synchronization clients of more than 1.5 billion mobile devices on the market today. Service providers in emerging and developed markets use Synchronica products to offer mobile email, PIM synchronization, and backup and restore services to consumer and business subscribers.

Synchronica recently acquired AxisMobile and is set to become the leading player in mass market mobile email and synchronization middleware. The enhanced Synchronica Mobile Gateway will offer the most comprehensive multi-protocol mobile email solution in the market today, introducing email-to-SMS and email-to-MMS, as well as WAP and XHTML gateways. Document transcoding will add the ability to display a large variety of attachments, such as Word, Excel, and PowerPoint on standard feature phones.

Headquartered in England, Synchronica has a development center in Germany and presences in the USA, Hong Kong, and Dubai. Synchronica plc is a public company traded on the AIM list of the London Stock Exchange (SYNC.LN). More information is available at www.synchronica.com

For more information, please contact:

Nicole Meissner
Chief Marketing Officer
Tel.: +44 1892 552 780
Mobile: +44 7977 256 412
Fax: +44 1892 552 721
nicole.meissner@synchronica.com