The bright future at the ‘bottom of the pyramid’

Four months ago, SA’s leader in connecting homes to fibre, Vumatel, startled the market by announcing it would roll out high-speed broadband in the low-income Cape Town suburb of Mitchells Plain.

It declared an intention of passing 42,000 homes, with a business plan targeting 30% uptake of fibre by these homes within a year.

This week, CEO Dietlof Mare told Business Times Vumatel has reached the 25,000 mark in homes passed — a standard measure giving the number of houses that can be converted to actual fibre connections — but said uptake had far exceeded expectations, at 30% within three months. The reason, he believes, is that high-speed connectivity is even more important in lowincome areas than in the affluent suburbs that were the first to embrace fibre-to-thehome.

“We’re going into areas which are not the traditional broadband areas, but where connectivity is super important. There’s a clear need in those areas. It’s affordability, obviously, and then uncapped data and super service.”

More than that, Vumatel found high device connectivity in many of these homes. “Typically there are multiple generations within one home, for example a grandson, mother and grandfather, and each of them is spending on mobile data. Now they’re pooling their spend on the fibre service and that’s why we’ve seen a high demand for it.”

Mare was an executive for Vodacom for 17 years, operating across Africa, including Tanzania, and then ran Vodafone Albania for six years. This experience gave him a deep insight into emerging markets.

“I learnt that people underestimate the disposable income in lowerincome segments across Africa and developing markets in Eastern Europe. We always underestimated the amount of other sources of possible income there.”

The informal economy “is much bigger than we think” because lifestyles in such segments are different — it is mostly a cash economy.

Mare says that in places such as Mitchells Plain people don’t have the debts and liabilities that people in more affluent areas have.

“But they’ve got a bigger need sometimes for the basic necessities, and data is now one of the needs in these underserviced areas.

“You can change the country if you make things like this possible. You can create a connected country.”

While this may sound idealistic, it is made possible by the shifting economics of fibre roll-out. “We looked hard at operational efficiencies. We’re offering one product, which obviously gives us some efficiencies as well. But then we also offer it on a prepaid platform … So that simplifies the management, which reduces the cost of managing, and therefore the cost of providing the service.”

This all brings to mind the concept of

“the fortune at the bottom of the pyramid”, first put forward in 2001 by CK Prahalad and Stuart L Hart in the journal Strategy+Business. They argued that the fastest-growing new markets and opportunities would be among people at the bottom of the financial pyramid.

Mare’s experience and the Mitchells Plain roll-out suggest this will be a defining element of the broadband future.

People underestimate the disposable income in lower-income segments