Risks and Rewards in High-Growth Emerging Markets

It took six months to work out the contracts. Two months were spent for setup, testing and deploying the customer interface in Mandarin Chinese. One month later, the new mobile phone service, managed by Effortel staff located in Belgium, was up and running with 50,000 native Chinese-speaking customers. But these customers were not in China. This MVNO was made specifically for the population of approximately 150,000 Chinese immigrants currently living and working in Italy, less than 700 kilometers away from Effortel's offices.

Meanwhile, in Africa, mobile phone usage is skyrocketing since technology developments made phones cheap and plentiful. For example, in 2001, there were only 500,000 telephone lines among Nigeria's 134 million citizens. Today, Nigeria has more than 40 million cellular subscribers, and that number continues to increase annually. As a result, many social services, including medical and government information, now are disseminated via mobile phone. And because of the ubiquity of cell phones, prepaid mobile phone minutes are used and exchanged for goods and services as a form of currency in this region.

While these are two seemingly disparate markets, the similarities in their growth and rapid deployment strategies are striking. Like the old Wild West, boom markets from Africa to Central and Latin America to embedded markets like the Chinese customers in Italy are driving a gold rush — in this case, an ‘Air Rush’ — among service providers looking to capture first-time subscribers and market share. Navigating the risks in this lucrative sector takes skills, knowledge and guidance to achieve profitable success.

High-Growth Emerging Markets Are Everywhere

High-growth emerging markets appear because of change, and change comes in many forms. Markets created by economic changes, such as those in Eastern Europe, Latin America, Southern Asia, and Central and Western Africa, have developed because economic conditions have rapidly improved. Mobile companies like Vodafone and Millicom report significant growth, increases in market share, and profits from operations in these regions.

Technology also plays a significant role in driving the possibilities in these markets. New services — Internet access, VoIP, WiMAX — and evolving business models like MVNOs enable cheaper and faster deployment in areas that previously were not viable prospects.

High-Growth Market Issues

High-growth markets present great opportunities, but there are associated risks. Subscribers in many of these emerging economic markets live on less than $2 (U.S.) per day and have a very low ARPU. For comparison, in established markets like the United States, Japan and Western Europe, ARPU for voice service ranges between $50-70 per month. However, costs for maintaining customers in these established markets are significantly higher than those in emerging markets. Though ARPU in emerging markets may be lower, comparing average profit per user (APPU) for the same areas shows similar or greater results in emerging markets. In addition, subscribers in emerging markets spend a higher proportion of their disposable income on communications services.