Technology Series, Part 3: Village Phone

This highlight was inspired by the publication of a recent article by Fast Company magazine which questioned the continued utility of the Village Phone model in Bangladesh as cell phones become more commonplace. Peter Bladin, a Vice President at Grameen Foundation and Director of Grameen Foundation’s Technology Center argues that Village Phone remains a viable model due to persistent market shortcomings in many parts of the developing world.

What is Village Phone? Village Phone is a shared access model which links the telecommunications sector with the microfinance sector to enable microfinance clients to borrow the money needed to establish a Village Phone business in their rural communities. These grassroots entrepreneurs, Village Phone Operators, then rent the use of the phone on a per-call basis providing both affordable telephone access in their community while earning enough to repay their loan and raise their level of income.

When Grameen Telecom launched Village Phone a decade ago, many experts said it would reach saturation after 5 years and 50,000 clients. However, after 10 years, it is still active and has reached more than 290,000 clients. Does this continued outreach indicate the long-term viability of the model, or simply the reality that much of the world still does not have access to telecommunication services? It is really a combination of both.

Market conditions ultimately dictate whether a model will survive, and the Village Phone model was developed as a viable way to address several market shortcomings:

1. Phone companies typically take a long time to extend their coverage to rural areas
2. Handsets are often too expensive for poor people
3. High airtime service fees (cost of connection to the network)

By addressing these issues, Village Phone helped bring affordable mobile phone access to rural Bangladesh far earlier than it would have occurred otherwise. It still does so in the rural areas where these market conditions persist.

Moving beyond Bangladesh

These same market shortcomings exist in many other developing countries. This led Grameen Foundation to replicate the model outside of Bangladesh. Our experience in Uganda and Rwanda, where we launched joint ventures with local telecommunications companies, showed that even in countries very different from Bangladesh, the fundamental Village Phone model was still widely applicable, while being sustainable from business and operational standpoints.

In Uganda, where the first successful replication began in 2003, Village Phone Operators earn about 3.2 times the gross national income (GNI) per capita. While on average, Ugandans earned 77 cents per day (based on 2005 GNI per capita data of $280), a Village Phone Operator earned more than $2 in gross revenue per day just by selling 15 minutes of airtime daily. In addition, Village Phone provides benefits not only to the Village Phone Operator but to the community as well. Rural individuals can gain access to information that increases their productivity, earns better prices for the goods they produce, and saves on the direct and opportunity costs of traveling away from home. Since its launch almost four years ago, more than 10,000 new Village Phone businesses have been created across Uganda.

Accelerating mobile phone access with Village Phone Direct

To further catalyze the global movement to expand affordable access in rural areas, Grameen Foundation recently launched Village Phone Direct (VPD), an initiative that allows microfinance institutions (MFIs) and other organizations to directly create their own Village Phone programs without waiting for Grameen Foundation and a local telecom to form a joint venture Village Phone Company. This toolkit approach to Village Phone enables MFIs to drive the process and gives them the flexibility to choose the partners to engage with and at what level.

An online assistance center serves as a central hub for the exchange of information and knowledge that organizations need to create a program that meets the needs of their clients and the markets where they operate.

Two microfinance institutions, NWTF (Philippines) and Fonkoze (Haiti), have begun to implement their own Village Phone programs with support from the Village Phone Direct initiative. NWTF started their initiative without a formal telecom partnership and have worked to provide all the loan information, training, equipment, airtime access and other necessary Village Phone services directly to their clients. Moving forward, they are exploring the benefits of creating a formal partnership with targeted telecommunications operators. In Haiti, Fonkoze partnered with Digicel, Haiti’s largest cell phone provider, to create FonkoSèl Aktive pa Digicel (FonkoSèl) which was publicly launched in July 2007.

Future viability of the Village Phone model

Sixty-one percent of the globe’s mobile subscribers are in the developing world, according to an International Telecommunications Union 2007 report, as it is now cheaper to provide mobile phones than to wire up homes and offices for fixed-line telephones. As mobile phone access expands, many of the market shortcomings in Bangladesh that led to the creation of Village Phone are disappearing. This has led some to question the viability of the Village Phone model. In a recent article in Fast Company magazine entitled “Unplanned Obsolescence,” Richard Shaffer argued, “Technology and GrameenPhone itself have made the village phone obsolete. Access to cell phones has expanded rapidly across Bangladesh, as in other developing nations.”

It is true that access to mobile phones has expanded greatly in recent years, and in certain areas of the world, the Village Phone model may no longer be as relevant due to increased access. However, more than half of the world’s population continues to live and work in rural areas with little or no access, and in these places the model is still very much in demand. The nature of Village Phone lies in its name. It targets rural communities and villages where there are no viable, affordable, accessible alternatives for communications services. For these communities, Village Phone still has a significant role to play in bridging the market shortcomings and bringing affordable telecommunications to the entire population, not just the wealthy and middle class urban communities.

Innovations using the shared access model

Responding to the growth of mobile phone use in the developing world, Grameen Foundation has developed an Application Laboratory (AppLab) to help generate future innovations that will focus on how information and communications technology can be utilized to best serve the needs and demands of those living in poverty. The AppLab will develop and pilot data applications and services to be delivered through the existing Village Phone and shared access model to provide community access to information, financial, health and educational resources.

Rather than focusing on just technologies, the AppLab will focus more intently on how ICTs can be used to serve the needs and demands of poor people through applications and services that:

1. Provide additional revenue to the Village Phone Operator (VPO)
2. Add socio-economic value either directly or indirectly to the rural community served
3. Are financially sustainable, able to scale across the network, and hold the potential for global portability

Conclusion

The ability to communicate easily and without restraint is an essential component of social and economic development, especially in poor, rural communities. Pervasive and affordable telecommunications access can help improve education, health and economic well-being. It also enables micro-entrepreneurial businesses to be more agile and responsive which leads to new businesses and builds stronger communities.

Even as mobile phone penetration nears the three billion mark it is crucial to remember that more than half the world’s population continues to live without the necessary access. No matter how low the cost of mobile phones becomes, the need and the market for the shared access model in developing countries will remain. Village Phone will continue to fill this gap and serve as an important tool in helping give micro-entrepreneurs a financial boost to finance their own futures, and communities a path for finally achieving universal access.