Friday, January 25, 2013

"Broadband for Everyone" is Not Just a Slogan

Some might think the phrase “broadband for everyone” is only a slogan. On the contrary, over the next decade or so, we might find an extraordinary jump in the percentage of human beings in developing regions who have access to the Internet, can afford to buy access on a regular basis, and therefore create a big business opportunity for suppliers.

For example, if one assumes that in 2005 the middle class population of China was about eight percent, by 2030 it will be as high as 72 percent. In India, where the percentage of middle class people in 2005 was perhaps in the low single digits, by 2030 some 41 percent of India’s people will be middle class, defined as households with annual disposal income between 200,000 rupees up to one million rupees ($3,606 to $18,031 in annual disposable income).

Over the last decade, there has been a 50 percent jump in the number of people in the “middle class in Latin America and the Caribbean, The World Bank reports. Roughly speaking, about 30 percent of people in the Latin American and Caribbean region were middle class in 2009, using a definition of income between $10 a day and $50 a day.

The report on the Latin American middle class  found that the middle class in the region grew to an estimated 152 million in 2009, compared to 103 million in 2003, an increase of 50 percent.

Among the highest achievers were Brazil, which comprised about 40 percent of the region’s middle class growth; Colombia, where 54 percent of people improved their economic status between 1992 and 2008; and Mexico, which had 17 percent of its population join the middle class between 2000 and 2010.

Today, the middle class and the poor in Latin America account for roughly the same share of the population, according to the report.

For suppliers of broadband services, the report is significant for several reasons. First, it shows dramatic growth of the base of consumers who logically will be buyers of Internet access services and products.

The study also suggests an important income threshold of about $10 a day income, the level at which enough economic security has been reached that the household is unlikely to fall back into poverty. That likely has key psychological implications for spending on products such as broadband access.

By a rough rule of thumb that suggests demand for broadband becomes significant once monthly cost falls to about three percent of household income, that $10 a day standard suggests a broadband service (terrestrial) will reach start to reach high levels of adoption at about $9 a month prices, and majority adoption at about $8 a month.

The point, as Canadian hockey star Wayne Gretzky once said, was to “skate to where the puck is going to be.” Even though the player with his stick on the puck mostly has to pay attention to where the puck is, right now, other defensive and offensive players will be thinking ahead to where the puck will be.

Suppliers of broadband access have the same challenge, namely building a business today, for today’s customer, while building towards a future where many billions of people will be able to become customers.

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