ESW Meeting: Iqbal Quadir, Grameen Phone (11/1/2004)

Iqbail Quadir was the founder of Grameen Phone, a wireless telecom provider of phones to rural people in Bengladesh. He spoke to the Engineers for a Sustainable World group. (Well, actually he pre-recorded his presentation and sent a DVD since he wasn't able to make it in person.)

He spoke about the failure of development efforts over the last 50 years through either

• investment
  
• education
  
• population control
  

Grameen Phone is the reverse of this top-down approach: view poor people as a resource, not a target. Not 2B mouths to feed, but 2B brains to work, 4B hands and legs to move things.

In Africa, there are about 20M fixed line phones, roughly constant, but mobile growing quickly (about 40M now, growing to 90M by 2008). These phones are transforming the work conditions of taxi-drivers, farmers, and everyone in between.
An economics study concluded that an incremental phone provides a benefit of about $5K, but costs only $1-2K at the GDP where Bangladesh is today.

Iqbal started from the assumption that "Connectivity is productivity," describing a couple of examples where he observed the converse. The high-tech example was when the network went down at his investment banking job. The low-tech example was when he was asked to walk to the next village to get medicine, only to discover the apothecary had done some travelling of his own, and was not there to provide the medicine. A simple phone call would have saved the 10-mile roundtrip on foot. He argued that connectivity enables specialization (in order to aggregate a sufficient market to support the specialization) and that as Adam Smith claims, "Specialization is the path to increased productivity."

To demonstrate the insatiable need for telecom services, he showed a chart from The Economist (10/11/2003) of Household Spending Growth from "Rich" (OECD) countries over 1990 - 2000: spending on communications was the fastest growth among the categories (1.5X over 1990-2000), even though cost per call decreased significantly.

But the telecom situation in Bangladesh in 1993 was dire:

• 2 phones per 1,000 people (mostly analog) (basically none in the rural areas)
  
• $500 connection fee
  
• 5-10 year waiting period
  

Given that this level was even lower than one would expect based on Bangladesh's "nominal poverty", how could you increase penetration, esp. in rural area? What are true bottlenecks?

This lead to a number of observations and demolished "objections":

• If telephones generate income, "poverty" is not really an excuse.
  
• Does increased productivity pay for the equipment?
  
• Do they have initial income to afford? Share access, share expense. And fund the equipment with a microcredit loan. If a cow is a fundable productive asset, why not a cell phone?
  
• If primary needs are not met, do they need telecom? Who are we to decide--give them the choice and let them decide, esp. when options increase income.
  

The US experienced an internet explosion because it had the key existing infrastructure: computers, modems, phone lines, and credit cards. In
Bangladesh the needed infrastructure for this program included: credit check and bill collection. Therefore, Iqbal recognized the opportunity to partner with Grameen Bank (1,138 branches, 2.3M borrowers, lending $33M/month, 94% women borrowers, 96-97% recovery rate) as both a distribution channel to locate able entrepreneurs and a funding source (for the individual "Phone ladies".)

Although the program often sounds almost quaint and small scale, it's important to remember that it's a real business. It was funded by US angel investors and partner Telenor (Norwegian telecom), among others, to the tune of $125M to build the network. Today, the amount of overall investment approaches $500M. However, the business is a profitable one, with $74M of net income in 2003. It has 2M subscribers (largest phone company in Bangladesh) and serves some 40,000 villages with 55,000 phones, giving access to 50M rural people (about 1,000 people per village phone). Usage of each village phone is 12X higher than urban phone, so the 55,000 have the equivalent usage of 600,000 urban phones. Each village phone generates about $100/mo of revenue for Grameen Phone. The individual Phone Lady earns about $2/day income after expenses.

People are using the phones to:

• Substitute for costly trips
  
• Call a doctor
  
• Understand prices
  
• Make deals
  
• Generate profit for entrepreneurs
  

Iqbal closed with the philosophical argument for "bottom up" development:
By strengthening the people, you promote democracy, which is better than
giving money to the government which concentrates wealth and strengthens
an oligarchical ruling class.