Larry Press
Necessity is the mother of invention. In the early 1960s, computer scientists in the United States saw the need for the interconnection of their computers, and our government had the resources and foresight to fund the research and development that led to today's Internet. Our consumer economy also led us to innovate in electronic business, and the resulting increases in market and production efficiency promise great economic benefit. But, what of the developing world? Half of the people on Earth have never made a phone call let alone surfed the Web.
We have hypothesized that the Internet may make a significant contribution to the economy and quality of life in developing nations [4], but, if that is to be the case, it must reach those nations. Even more difficult, it must reach their remote areas and villages. Nearly forty percent of the world population lives in rural areas of nations with low-income economies [7]. Internet connectivity in these areas is extremely difficult; however, there is a compelling need to improve village life, which leads to innovation. We will review promising innovations at Grameen Bank and related companies, The Pan Asia Networking (PAN) Program, and Teledesic.
Grameen Bank (www.grameen.com) is arguably the most successful organization in the history of development theory or practice. Their motto is "banking for the poor," and their approach is best introduced with an example [1]. Mrs. Aleya lives in a village near Dibuapur in Bangladesh. Her first bank loan was for 2,000 takas (around 50 dollars). Five percent went immediately to the joint saving fund administered by her five-person member group. (Grameen borrowers are referred to as "members" and they own 90% of the bank stock). The balance was used to buy a cow. She sold milk, earning from 10-20 takas per day, and repaid the principle plus 163 takas interest in 52 weekly installments. An additional 41 takas (25% of the interest) was paid into the Emergency Fund, a form of life insurance. At the end of the year, she owned the cow. The following month she borrowed 3,000 takas and bought a second cow. In subsequent years, her loans increased to 5,000 takas, and she diversified into chickens, growing vegetables on leased land, wholesale purchase of lentils, and saving for her daughter's wedding.
Grameen Bank (Gram means "village" in Bangla) was founded in 1976 by Muhammad Yunus, an economics professor in Southern Bangladesh. The bank is a socially conscious capitalist enterprise, a business that aims at profitability, but with the mission of ending poverty and hunger. Grameen makes loans to the poorest people in villages, allowing them to become self-employed micro-entrepreneurs, thereby raising their income and accumulating capital. While conventional banks require borrowers to exceed a minimum level of assets, Grameen sets an upper limit. In many respects, it is an "anti-bank." They have developed an organization and set of mores and procedures that decentralize loan decision making, bring the banker to the village, and substitute local social pressure for fiscal assets as collateral. (The five-person member group has joint responsibility for each member’s loan).
The Grameen bankers who visit each village weekly are combination social workers, financial advisors and loan collectors. They bring health and education information and urge disciplined values and lifestyle choices. Weekly meetings include recitation of Grameen's 16 lifestyle decisions and the credo of "discipline, unity, courage and hard work." This sort of regimentation may seem oppressive or paternalistic to modern Americans, but it would have fit right in at an IBM plant in the 1950s, and is efficacious in rural Bangladesh today.
A decentralized organization that utilizes a protocol that evolved from experience and field-testing and grows from the edges rather than the center is reminiscent of the Internet. Grameen has also grown like the Internet (Figures 1 and 2). They made loans of $498 to 10 members in 1976, and by August 1998 had cumulative loans of $2.44 billion to 2,357,153 members (95% women). Along the way, members had used Grameen loans to build 443,636 houses for their families.
After difficult years of learning and doubt from conventional thinkers, it appears the Grameen Bank is succeeding in reducing poverty, self-sustaining, and replicable. A World Bank study found that Grameen Bank has generated a number of benefits both at the household and village levels [3]. They found improvements in income, employment, asset accumulation, net worth, and non-financial household welfare indicators like contraceptive use and school enrollment. Grameen’s loan recovery rate has been consistently over 90 percent compared with rates from 25 to 50 percent for other financial institutions in Bangladesh. Their experience is that women are better credit risks, with higher loan recovery rates and lower dropout rates, than men. While initially dependent upon development loans and grants and Dr. Yunus’ energy and charisma, Grameen stopped negotiating for new grants or soft loans in 1995, and has been replicated in 30 nations. For further information on world-wide microcredit, see www.soc.titech.ac.jp/icm/icm.html.
There are now 13 Grameen Family organizations, three of which, Grameen Communication, Grameen Telecom, and Grameen Phone, are involved in telecommunication. Grameen Communication is an ISP with the goal of bringing Internet services to Grameen offices, educational and research institutions, and social and government organizations throughout Bangladesh. They currently serve 32 locations, 8 outside of the capital city. Users connect at only 1,200 or 2,400 bps because of low-quality phone lines.
They would like to use Grameen's entrepreneurial method to reach villages, and have proposed a Village Email Program (VEP). The VEP would establish an email kiosk with two computers in a village. These would be connected to the Internet through a low-earth orbiting (LEO) communication satellite operated by VITA, Volunteers in Technical Assistance, www.vita.org. VITA has supplied data communication to remote areas in developing nations for a number of years. Since they operate only one satellite, users are limited to store-and-forward applications and the communication speed is 9,600 bps.
Proposed VEP applications include early warning for natural disasters, health information delivery, email for local commerce and contact with family members in cities and abroad, education, computer training, and word processing and printing services. This would clearly be a bigger business than buying a cow. The initial cost of a two-computer kiosk would be $32,700 for equipment and one-time charges. Grameen estimates annual operating cost of $4,320 and a gross income of $6,756 the first year. This does not sound like a sustainable business, but this is a prototype from which they will learn, and technology is changing rapidly.
Grameen Telecom uses micro-credit to fund village cellular telephone operators [6]. One of their first subscribers, Mrs. Laili, borrowed $450 for a cellular phone and is repaying her loan at a rate of $3.50 a week. Calls cost her around 8 cents a minute, and she charges 10 cents. Service began in March 1997, and by October 1998, 150 village operators were averaging a profit of $2 per day, more than twice the country’s annual per-capita income. By February 1999, the number of village phones was 240, and they plan to reach 2000 by the end of 1999. Of course the villages must be connected, and Grameen Telecom is a 35% shareholder of Grameen Phone, a nationwide cellular provider that is responsible for network operation and urban telephone connections. Grameen Telecom and Grameen Phone have private investors, and are hopefully profitable, sustainable businesses.
Grameen Communication has also had support the Pan Asia Networking (PAN) Program of the International Development Research Centre (www.panasia.org.sg), which supports Internet connectivity and the creation of local content in many Asian nations. PAN has funded a noteworthy village communication project in Pondicherry in southern India [5]. The M. S. Swaminathan Research Foundation, www.mssrf.org/index.htm, which runs the project, began with an in-depth study of the users and their requirements. Only when that was complete did they turn to implementation and technology. The project has established Information Shops in six villages. These communicate with two Value-Adding Centres that serve information and connect to the Internet.
The links between the villages and Value-Adding Centres are wireless. The longest is 16 kilometers, and they routinely transfer data at 9,600 bps, maintaining open sessions for 60 minutes (limited by transmitter overheating). In the Value-Adding Centres they have interfaced small Panasonic PBXs to the wireless network, and those connect to the Internet via telephone. The computers are solar powered using systems from Central Electronics Ltd., an Indian public-sector enterprise. They have been in production since November, 1998, and provide voice and data communication. A villager can log onto a shell account and send email or browse the Web using Lynx, a character-oriented Web client from the University of Kansas, or make a seamless call over the switched phone network. The operators are village residents elected by the village general body, and the system is used in agricultural, educational, and health care applications identified during the preliminary study.
These projects are preliminary pilot studies. They emphasize applications and local control over technology, and are tests of the hypothesis that information technology can improve village life. Hearing of 1,200 bps communication over unreliable, expensive links can be discouraging, but we were using 110 bps Teletypes only a few years ago, and one day the technological barriers to village communication will be gone. For example, Teledesic's satellite network may make links to villages common.
Teledesic, www.teledesic.com, will begin offering 24-hour connectivity through a network of 288 LEO satellites in 2003. They feel they can compete effectively with terrestrial backbones because IP networks are simple. The network core consists of homogeneous routers, and application complexity and innovation are at the edges, in the user's equipment [2]. Teledesic's satellites will house IP routers with algorithms that take into consideration their constantly changing locations.
Teledesic ground stations will be capable of up-link speed up to 2 mb/s and down-link speed up to 64mb/s. Speed selection will be under program control so Teledesic will be able to offer user-variable, guaranteed quality of service (QOS) between any points on Earth. If they were operating today, their QOS guarantee would give them a competitive advantage in developed nations where there is demand for such service. (It would be a somewhat lower advantage in major metropolitan areas where the distance to a POP capable of guaranteeing QOS would typically be lower than in a more remote area). As terrestrial backbone operators deploy technology and make exchange and settlement arrangements allowing them to guarantee QOS, this competitive advantage will diminish in developed nations, but Teledesic would still enjoy a monopoly in developing nations where there is little terrestrial connectivity, particularly outside of major cities.
Discriminatory pricing -- having different prices for different classes of customers -- is to a firm's advantage as long as their customers have different demand curves and the markets can be kept separate, avoiding arbitrage. Thus we see the prices of children's haircuts or movie tickets are lower than adult's. The demand curve for communication services is clearly different in a Bangladeshi village than in New York or even Dhaka, but, as the telephone companies have learned from call-back operators, arbitrage may be difficult to combat. Still, if Teledesic can keep the markets separated, it would be to their advantage to charge different rates in Bangladesh than the US.
Teledesic could discriminate on the price of ground stations or service or both. There are many joint pricing models, but one option would be to sell the ground stations at a profit, and offer unlimited, free traffic over lowest-QOS links (sell the "razor" and give the lowest-quality "blades" away). A kiosk operator in a Bangladeshi village could then offer unlimited email and file transfer and perhaps one full-time interactive session at no marginal cost. While Teledesic is still several years away from making pricing decisions, their president and COO Russell Daggatt guesses at around $4,000 as the ballpark cost of a ground station. Given the low cost of labor and space in Bangladesh, it seems quite likely that a kiosk operator on the scale of a Grameen enterprise could amortize such an investment.
As demand arose for higher QOS, for example in handling voice traffic, a usage-based charge could kick in, but the price in Bangladesh would probably still be below that in a developed nation. Teledesic would be seeding expansion without losing money since the marginal cost of handling low-QOS traffic would be zero. (Presumably the routers over Bangladesh at any point in time would have excess capacity). Low prices would encourage usage, leading to increased productivity and the invention of new applications, which would fuel demand. The value of a network connection in Bangladesh would also increase as new users and services were added, forming positive feedback and encouraging growth. Low prices would also discourage telephone companies, railroad operators, and others from entering the backbone market.
Many argue that poor nations cannot afford the luxury of the Internet or information technology while in dire need of necessities like food and clean water, but are there applications which are appropriate to the needs of a Bangladeshi village which might lead to more food and clean water? It is our hypothesis that this is the case, and we have described several projects that are early tests of this hypothesis. The goal is to move villagers from two to three meals per day or from one change of clothes to two. Testing this hypothesis will require innovative organizations, finance methods, applications and technology. We need an understanding of village requirements, mass-producable kiosks, wireless terrestrial and satellite connectivity, solar-powered nodes, community ownership, micro-credit, local training and staffing techniques, voice and video content, agricultural information, news, entertainment, etc. Bangladesh has the need to mother innovation. If they succeed, they may show the way for half the world.
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