Village Connection aims to drive new business model

To connect the next billion, or perhaps even the next three billion who likely only have $2-$3 to spend on mobile services a month, Nokia Siemens Networks has introduced the Village Connection to make it more cost effective for operators to extend GSM coverage in rural areas, where conventional network rollouts have proved prohibitive.

Voice and SMS coverage is provided via a modular, compact GSM access points based at a villager's home that supports up to 70 mobile numbers. Instead of the operator owning and managing an access point, Nokia Siemens is pushing what it calls a partnership approach that reduces the total cost of owning a phone to about $3 per month.

The concept is for the operator to recruit local entrepreneurs or franchisees to acquire an access point, with the support of local micro financing, and work with the operator to sign up subscribers. Alternatively, the mobile operator can own the access point, which the entrepreneur can then operate for a salary or fee.

Nokia Siemens' director of new growth markets Rauno Granath says the solution has the potential to drive new business models but doesn't require it. 'The village entrepreneur could end up being an employee of the operator.'

The company is conducting pilot projects in India and aims to roll out the program in select markets later in the year.

Each access point can autonomously handle calls within a village through local switching. Research shows intra-village calls account for about 50% of total traffic. Access points are connected via IP links to a regional access center, which connects the villages to the main GSM core network and handles the calls between villages.

Many analysts say one of the biggest challenges will be the lack of infrastructure, such a reliable power supply as well as backhaul, which represents a major barrier if heavy investments are required.

Infrastructure challenges

Yankee Group analyst XJ Wong Franchise says the solution is 'not a bad idea', but noted it's still unclear the investment required to become a franchisee. 'If the cost is relatively high, then adoption will be very low.'

Wang points out that the real challenge in India is the heavy price pressure on network equipment from operators. 'Nokia Siemens has to adopt new business models, such as managed services and managed capacity service to make money. These new business models are not something Huawei or ZTE have mastered' so that gives it a big head start.

At the same time as the announcement of the Village Connection, Nokia also introduced seven entry-level phones for emerging markets at a global launch in New Delhi. India is one of Nokia's top three markets globally, and is adding six million subs each month.

The sleek and stylish models, scheduled for release in Q3 and Q4, are priced between 35 euros and 90 euros. 'Because there is not one killer phone for first-time users,' Nokia's SVP for mobile phones Soren Petersen said the company has 'crafted' its lineup to fit the individual segments.  The lower-cost models are equipped with multiple phone books and a cost tracker application for shared use, as well as a flashlight and dust-proof keypads.

 

Pointing out that a phone is a big investment for low-income users - often representing as much has five month's salary - and that such consumers can't afford to buy a second phone if they have problems with the first, Petersen says he's not worried about increased pressure from low-cost makers for ultra low-end handsets because durability, reliability and style rank as high as affordability among consumers in developing markets.

'Our research found 80% of consumers in India rank style as an important attribute when purchasing a mobile phone, which is much higher than in developed markets,' said Nokia India VP and MD of mobile phones D. Shivakuma.

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