Data Affordability is Key to Online Engagement in Emerging Markets

With almost 3.2 billion smartphones in use in the world today, emerging markets are set to benefit from widespread first-time adoption. According to Ericsson, by 2022, there will be more than a ten-fold increase in mobile data traffic in the region.

With more people using their smartphones to get online for the very first time, there’s a tremendous growth opportunity for mobile network operators, content publishers, and marketers in emerging markets.

Yet, many countries are struggling to get more than 25% of their populations online. High connectivity costs remain one of the biggest obstacles preventing people in emerging markets from achieving universal access.

Daily trade-off

According to the findings of a research project on low-income, first-time smartphone users in Kenya, people are forced to make a daily trade-off between internet connectivity and other necessities.

Undertaken by the Digital Skills Observatory, and sponsored by the Mozilla Foundation, Digital Divide Data and the Bill & Melinda Gates Foundation, the research follows 200 individuals from January to December 2016 who are coming online for the first time through their Android smartphones.

While the report makes for compelling reading, the findings serve to remind us that amid the hype of surging data traffic, data affordability for people in emerging markets isn’t just a fact of life. It’s a real and ongoing challenge.

The cost of connectivity

The report shows us that after purchasing a smartphone, people are often alarmed at the cost of being connected. And since modern smartphone apps use a lot of data, people do whatever they can to avoid spending money unnecessarily. As this extract from the final report highlights, this leads to usage patterns based on avoidance:

On the Safaricom network—the most expensive, but robust network—a 65MB data bundle costs Ksh 50, which could also be used to buy dinner or water, or pay rent.

This financial decision is difficult to make on a daily basis, so people find systems to spend as little data as they can online.

Instead of using the Play Store to download apps, people share them with one another over Bluetooth using Flash Share (or Xender). If they cannot rely on a friend, they might go to a cyber café where installing an application costs Ksh 100 per app.

Here’s a real-world example from the report which provides clear insight into the online habits of many users:

Faith from Nairobi limits her Internet usage to 30MB per day to make sure she is within budget. If this limit prevents her from being online, then she will simply be disconnected until she can afford another data bundle. Among others, her participation in Sterro, our WhatsApp experiment, was disrupted by this problem. Participants are frequently cut off from smartphone activity because of data costs. This high cost of Internet usage is an important barrier to the adoption of products and services.

For reference, participants in the research had a daily income of Ksh 500, or USD $5. This will buy 1GB of data, a substantial dinner for five, or rent for a week.

The report asks whether it’s possible to make the Internet less expensive for this demographic without sacrificing range or freedom of choice?

Of course, the data affordability issue is not just a problem for Kenya. There’s no shortage of data showing just how far prices need to fall to become generally affordable.

1GB of data = almost one fifth of monthly incomes

Across Africa, just 1GB of data costs an average citizen nearly 18% of their monthly income. By comparison, in Europe, 1GB of data accounts for less than 1% of theirs.

Average price of a 1GB (prepaid, mobile) broadband plan

(as a % of GNI per capita, by region, 2013-2015)

It’s hardly surprising then that people in emerging markets, do whatever they can to avoid spending money unnecessarily. As such, this means ignoring content rich, data hungry apps.

In fact, last year, a study by Strategy&, a unit of the consulting firm PwC, concluded that most of the world simply can’t afford mobile data at current prices.

Fewer than half of the world’s population can afford data

Defining ‘affordable’ as a prepaid data plan that allows up to 500 MB of use a month, and costing 5% or less of a person’s gross monthly income, the study asserts that only 43% of the world’s population can afford this level of mobile data usage.

According to the study, for that number to double, data costs would have to fall by 70% globally. Though, in some African markets, costs would have to fall by more than 90% for it to be deemed affordable.

But, the challenge with making data more affordable across emerging markets is vexed, and any number of factors influence data costs in each market. These include regulatory fees, government taxes, and domestic energy costs, not to mention the investment required to roll out network infrastructure to remote locations.

By imposing data pricing restrictions, you also immediately curb competition, and to some degree, stifle innovation.

Do more with less

But, there is another way forward that is both practical and viable. One solution where time to market is also a non-issue.

Working with the networks as they are now, by making more efficient use of existing infrastructure and bandwidth capacity, you immediately overcome the largest barriers curtailing internet usage growth.

Only when network operators, marketers and content publishers adopt strategies that help users overcome the data affordability barrier will they truly be able to reach and engage with mobile audiences at scale.

Connectivity for the unconnected

In emerging markets where most users pay for their Internet on a capped or metered basis (instead of having the unlimited Internet data packages as in many developed countries), zero-rating offers a way forward. And one that delivers significant wins for network operators, content publishers, and users alike.

As a marketing tool, zero-rating offers a competitive way to introduce Internet access and relevant online content to low-income communities by offering access to content that does not count toward the user’s data cap. However, the practice continues to attract much controversy around the world where it’s pitched as a battle against Net Neutrality.

Zero-rating in emerging markets

To put this into perspective, Helani Galpaya, CEO of LIRNEasia presents the case for and against zero-rating in emerging markets in her treatise, Zero-rating in Emerging Economies.

This paper for the Global Commission on Internet Governance, published by the Centre for International Governance Innovation and Chatham House, in February 2017, touches on the issues of net neutrality, market power, privacy, security and social equity:

At one end was the argument that zero-rated content should be banned because it is a violation of net neutrality (because the free content is privileged over paid-for content, thereby giving an automatic advantage to the free content, possibly keeping users from exploring anything else in the rest of the Internet).

At the other end was the argument that zero-rated content is a boon to the poor and unconnected populace in Asia, Africa and Latin America, the rationale being that having some connectivity, even with minimal content, was better than having no access at all.

Galpaya goes on to argue that between these two extremes is an emerging body of evidence that suggests:

  • not only the poor find zero-rating attractive
  • most users prefer to have the full Internet instead of limited content (such as that offered by Facebook Free Basics)
  • a significant number of people don’t stay inside the zero-rated platform but use the full Internet instead
  • a zero-rating strategy is one among many used by telecom operators to increase market share and could easily be a passing phenomenon
  • competition could be enhanced or reduced depending on how the zero-rated content is offered in a given market, and
  • zero-rating strategies are very common, and when popular content such as Facebook is zero-rated, it enjoys significant uptake.

Users save money

Zero-rating provides an opportunity for users to save money because zero-rated apps do not consume their data allowance. When there’s no risk of additional charges related to the use of an app, users not only get price certainty but are empowered to explore the app further and engage more. Social media and text-messaging apps are among the content that is commonly zero-rated.

More users for content publishers

For mobile carriers, having agreements in place with specific content providers, and allowing users to access that content or service at no additional cost is a compelling way of attracting new users to the network. Users who’ll engage with the content publishers’ content and advertising.

Of course, by increasing demand for Internet connectivity, it could also help network operators achieve the scale they need to invest in better networks. This in turn this could allow carriers to provide Internet access at a lower price.

In defence of zero-rating

When mobile network operators or content publishers give away free data to encourage online engagement via their own app, it follows that competing companies will respond accordingly. This leads to more compelling free data offers, creating more opportunities for the unconnected to connect, and stay connected.

So, it’s a win for the mobile network operators, a win for content publishers, and a win for the consumer, who ultimately has access to competitively driven affordable data.

A survey conducted by the Alliance for Affordable Internet last year, revealed the most frequently reported benefits of using zero-rated services were:

  1. Supporting education (17% of all zero-rating users surveyed)
  2. Health (15%) and
  3. Accessing content about the community (15%).

These benefits were also the most frequent responses among all mobile Internet users surveyed. When we examine the benefits of zero-rating according to the type of zero-rated platform used, health and education appear to be important for all types, while more specific benefits are associated with the unique nature of each platform used.

For users of Facebook’s Free Basics zero-rated service, ability to access content about the local community and in local languages was an important benefit; Twitter Access users mentioned government services and supporting a political party; WhatsApp users noted that local language content and supporting a political party were important benefits.

According to Facebook’s data, about 50 percent of consumers who start out on Free Basics do end up paying for a data plan within a month.

As Galpaya contends in her paper, fewer than 20% of the population in emerging Asia is online where the price of data meets the affordability benchmark set by the UN Broadband Commission, so perhaps consumers need further impetus to get online.

Might they be tempted to try some data if it were free? Might social media content, especially apps such as Facebook used by the users’ friends, entice users to get online, especially if it were free initially?

After being exposed to the Internet (or a limited part of the Internet) in this manner, would these people later become consumers of the “full” Internet and buy a data bundle?

And what about the masses in Asia, Africa and Latin America who still face a huge affordability challenge? Will they not welcome the chance to try consuming some select content on the Internet for free?

When free data is offered in a transparent, thoughtful, and contextually relevant way, it goes to support net neutrality, not undermine it. Zero-rating content and services allows people to connect and stay connected without fear of the sting of high monthly data charges. It’s one way to overcome data affordability, without users having to disconnect.