Africa’s SMS crisis – and how to stop it

September 25, 2009 | Joshua Goldstein | Comments | |

(Editor’s note: Joshua Goldstein is a technology consultant and writer who, until recently, lived in Uganda. He submitted this column to VentureBeat.)

It would be easy to conclude that Africa is entering the golden age of mobile innovation. In Kenya, mPesa, a Safaricom service, allows users to send money anywhere in the country via mobile phone at very low rates.  Next door in Uganda, rural users out of reach of the Internet can use a new SMS-based service from MTN, Grameen Foundation and Google to trade goods, search the Internet and query local reproductive health and agriculture information.africa-cell

These services, however, represent a trickle of innovation where there should be a downpour. The source of this sluggishness is the structure of African mobile phone networks, which discourage entrepreneurs from quickly and cheaply creating, testing and deploying applications. 

Mobile networks are costly in Africa. The price of sending SMS texts is kept high by a combination of high taxes, interconnection fees and network provider choice. And because mobile networks are closed, no one can deploy a new application without the network expressly adding it to a consumer package.

In Uganda, for example, the cost of a user-to-user message is 5 US cents. A premium message (any message not sent from a single user to another) is 10 US cents, despite high levels of competition and low cost.  Since it’s rare for a mobile network to grant a discount to a premium service provider, entrepreneurs must attempt to scale in an environment where, according to ResearchICTAfrica, the average Kenyan already spends over 50% of her disposable income on communication. This is not a promising environment for innovation.

This means that many new ideas will never reach the market, not due to engineering challenges, but because of the underlying cost structure of SMS.

What are we missing out on? In Kenya, txteagle, an application developed by MIT researcher Nathan Eagle, allows companies to crowdsource translation tasks to users via SMS. In Uganda, Appfrica Labs, a local software company, is creating status.ug, a mobile social network to connect the six million Ugandans using mobile phones (full disclosure: I am currently an Appfrica Labs Fellow). 

The high price, coupled with the fact that entrepreneurs must spend time lobbying mobile providers for partnerships, means applications like these face difficulty scaling.

There is some hope for entrepreneurs. Mobile companies and regulators around the developing world are recognizing the “economics of abundance”—that more users at lower prices will result in more revenue.

In the Philippines, for example, mobile providers charge less than 1 US cent per SMS on average, according to telecom expert Steve Song.  What is striking about this is that they manage to generate three times the revenue per capita from SMS traffic than South Africa (where the average SMS costs over 9 US cents) does.

Also, in Uganda, for the first time in the telecom industry’s history, MTN agreed to lower the price of a premium SMS to 5 US cents for Farmers Friend, one of the newly launched Grameen and Google services, aimed at poor farmers. 

Whether this is the exception or the new rule is difficult to tell, but what is clear is that in an age of mobile innovation, network providers must choose whether they want to benefit from the downpour or be satisfied with only a trickle.

Image by whiteafrican via Flickr.

Next Story: Twitter confirms its latest round; no word on size
Previous Story: 12 facts about entrepreneurs that may surprise you

Bookmark and Share

Tags: ,

Photo of Joshua Goldstein

About the Author, Joshua Goldstein

Joshua Goldstein is a technology consultant and writer living in New York City. He primarily helps international organizations and companies find opportunities in Africa's emerging mobile and web landscape. He currently works with the UNICEF Innovations group and is a fellow at Appfrica Labs while blogging at In An African Minute and tweeting @african_minute. While completing his masters degree at the Fletcher School, Tufts University, he worked with Google Inc. on technology policy in Africa and with Harvard's Berkman Center for Internet & Society, exploring the effect of Internet on democracy. Before graduate school he worked at USAID in Uganda.

  • Peter A
    For the first time in months, I actually learned something new on VB! Thanks for a great article.
  • GL
    Great post! Not a jab at VB but agree with Peter A.
  • I actually feel like I've been hearing a lot about mobile networks and their sorry state in Africa. The tremendous potential is exciting though. Wasn't there recently an article about donating extra cell phone minutes to Africa? Can't remember where...
  • Interesting article.

    It seems like there might be a public policy angle on this. If the government forces competition then the end result should be lowered costs, but more taxes for the government.

    I think one thing American companies do well (a little too well maybe) is lobby the government. I wonder if that culture of effective lobbying and the ecosystem of lobbyists is not yet in place. Or maybe the telecom companies are too good at it already?
  • @Avichel as you imply, there are two big options: (i) regulate; or (ii) companies decide they have a profit movite (read: scale) impetus to lower prices. My concern w/ (i) is the low institutional capacity of most African regulators, leaving (ii) as the only real option in the near future, with Philippines as the best example of how that succeeded.
  • Techmasai
    Interesting article
  • felix kitaka
    Interesting article.
  • samuel_k
    I am a Kenyan and I think Universities in developing countries in Africa should provide ICT research centers. Student have very many innovative/great ideas that do not go far because of the above highlighted hurdles.

    I believe the universities can work closely with the mobile network providers to provide the services to researchers/students.
  • eddiesembatya
    Great article. I look at it this way. Mobile telcommuniation companies are profit making organsations and goverments in africa have the tendency to increase tax on highly consumed services or goods regarles of whether they are harmful or not. These cost in service provision are purely economic driven. Given Africas poor population as compared to the developed countries, the cost of operation (leave alone the risk) is always going to be higher in the developing countires then the western countries. There are fewer people who can afford mobile services as compared to the developing countries.
    I wouldnt like to miss the point of innovation among the telecommunication companies. Such innovations should be able to create more jobs and income sources to the people in Africa. The more people can afford to subscribe the greater the possiblity of reducing the cost of the service.
  • @ felix- thanks bud, thinking of you and the team and hope you are doing well!

    @samuel_k- agreed. universiites should be the first place where a public investment in connectivity should take place. This is where the capacity and literacy to use these tools is most apparent

    @eddiesembatya- i think you get at one of the key, unsolved questions here: is antagonistic regulation really the solution? I would say no. Instead, there has to be arguments that show that lower prices lead to more customers and ultimately more profit. This argument has not yet been demonstrated, so I'm hoping to contribute to this in some research of countries, such as the Philippines, who have done this successfully. If they don't lower rates, they will be by-passed, as is being done in the US with Twitter.