The finest revolutions arrive unheralded and remain unnoticed until they succeed. The best technological example I can think of is the now ubiquitous mobile phone, which just completed 25 years in Sri Lanka.
Our first mobile phone network was started in June 1989 (by CellTel, now Etisalat) which was also the first in South Asia. The island sustained this pioneering spirit by being the first in the region to switch on to UMTS (3G) service in 2004, and Long Term Evolution or LTE (4G) in 2013. Today, five telecom companies operate mobile networks in a market that is nearly saturated in terms of basic coverage.

It started off slowly. The early instruments were clunky and expensive while signal coverage was also very limited. There were just 2,644 subscribers in 1992, and it took a dozen years to reach 1 million (in 2003).
Then the market quickly gained momentum. The past decade has seen the largest number of telephone connections being given out in Sri Lanka, most of it mobile. By December 2013, there were 20.3 million mobile subscriptions in Sri Lanka according to the Telecommunications Regulatory Commission (TRC). Even accounting for some having multiple subscriptions, it has been a phenomenal growth.

During this time, the number of fixed phones also went up, though not as dramatically. In 1990, after nearly a century of telephony, we had 121,388 fixed phones (and a notorious waiting list several times longer). The first million was passed in 2005, and connections peaked in 2010 at 3.5 million. It is now in decline (2.7 million by end 2013) as more users are switching to mobiles only (as I did three years ago).

To understand the true extent of Sri Lanka’s mobile revolution, however, we must probe beyond impressive numbers and consider its societal, cultural and political impacts.

The mobile phone has become the default ‘convergent device’ that brings together a growing number of uses and services. In emerging economies like Sri Lanka’s, it has also been a great social leveller, enabling millions of poor to get connected. In South Asia, this happened thanks to what is called the ‘budget telecom model’. It coupled low cost technologies with business process innovations that helped operators to reduce costs. The model’s market impacts became visible from around 2005, but the process started years earlier.

First, governments reformed regulation, removing (or at least lowering) entry barriers for more telecom operators to enter their markets. Soon, intense competition reduced sign-up and call charges, so phone users started calling more. Higher volumes, in turn, enabled further rate reductions.

A turning point was allowing small and irregular payments on pre-paid basis, which significantly reduced transaction costs for operators (avoiding monthly billing and payment collection, etc.). Telcos also found other ways to contain capital and operating costs. This brought telecom within reach of the common man and woman.

“The new model makes ARPU (average revenue per user) irrelevant, because what really matters is how many revenue-yielding minutes are carried on the network, not how much money is earned from an average customer” says Prof. Rohan Samarajiva, Chair of LIRNEasia and former telecom regulator.
He adds: “In the same way that Ryanair and AirAsia make profits while conventional airlines lose money, budget telecom networks make more money than conventional operators.”

The model has some weaknesses, though. Given the scattered and numerous resellers, the quality of service isn’t consistent. And it increases the volatility of telco earnings.

On the demand side, how much are low income earners willing and able to pay for telecom services? And what benefits do they derive?

Beginning in 2005, LIRNEasia has conducted large sample surveys to understand how the Bottom of the Pyramid (BOP) interacts with phones. Their four Teleuse@BOP surveys (in 2005, 2006, 2008 and 2011) involved a total of 30,000 face-to-face interviews in seven countries including Sri Lanka. BOP was taken as socio-economic groups D and E in market research categorisation, while teleusers were defined as those who have used a phone (mobile or fixed; own, shared or public) to call during the preceding three months.
The findings show how the poor have become an important market. While cost remains a consideration, it has not stopped them from purchasing own phones and talk time.

In fact, they are prepared to spend a relatively high percentage of wages on telecommunications – because they value that connectivity economically and socially. This, says Prof Samarajiva, suggests how communications services are no longer a luxury but a necessity even among the poor.

At the same time, many BOP users have found smart ways to contain user costs. Examples:

• The ‘missed call’ or ‘ring-cut’ which has a specific meaning between two known users.
• Pre-paid mode, which limits usage (95% of our BOP use this).
• Owning multiple SIMs, so users can switch between networks to benefit from various discounts and packages.

LIRNEasia found that across South Asia, BOP phone ownership showed a marked increase between 2008 and 2011. The greatest rise was in Sri Lanka, where ownership rates went from 31% to 71%. Along the way, the mobile became more a personal item than a shared, household one.

Those who don’t yet own a phone rely on a family phone or a household member. Public pay phones, telecentres and village phones are also used, but the dynamics have changed considerably.

On the whole, LIRNEasia research found that teleusers at BOP are not significantly different from others. They too value the enhanced personal security, including emergency communications, social networking and economic benefits of owning a phone – or at least having easy access to one.

Although the frenzy of initial connectivity has now passed, the South Asian mobile story is far from over. The next stages involve going beyond voice and text messaging (SMS) to value-added services. These can be specific info services – such as news alerts, market updates or astrological advice – as well as accessing the web from mobiles.

More than half of Lankans who access the Internet (estimated by LIRNEasia to be around 25% of the population) already do so through mobiles or wireless broadband dongles.

Can the budget telecom model be adapted to deliver affordable broadband Internet in emerging Asia? Yes, says Prof Samarajiva, but it requires that small, prepaid, irregular payments must be allowed. This is significantly different from the always-on, all-you-can-eat models.

Bandwidth limitations are currently a bottleneck in rolling out wifi broadband services. Poor management of the electro-magnetic spectrum and delays in ‘re-farming’ frequencies for 3G (and higher) services has already affected mobile growth.

Some tech solutions for the spectrum shortage are known. One is using the ‘white space’ — high quality frequencies allocated to radio or TV broadcasting but not used. And when countries switch TV signals from analog to digital, it also frees chunks of frequencies that can be reassigned.

Progressive policies and regulation brought basic telephone access to (almost) everyone during the past decade. Can regulatory foresight again drive the next stages of this revolution?

Watch this space.
Science writer Nalaka Gunawardene is active on Twitter @NalakaG and blogs at http://nalakagunawardene.com.