Bottom of the Pyramid Expenditure Patterns on Mobile Phone Services in Selected Emerging Asian Countries

9.12.09

DIRSI researcher Aileen Agüero, who is currently doing an internship with our partner LIRNEasia, attended the Communication Policy Research South (CPR South) conference, on 7 and 8 December in Sri Lanka where she presented a paper, co-authored with Harsha de Silva, on low-income populations expenditure patterns on mobile telephone services. The authors maintain that mobile phone services have the characteristics of a ‘necessary’ service and explore a number of policy implications and recommendations that arise from that assumption.

Introduction

Mobile phone services in emerging Asian countries are nowadays widely used especially by low-income populations due to low costs and the opportunities they bring. The literature suggests that their use improves market functioning, as mobile phones constitute information enablers, which in turn lead to better decision making; as a result, productivity is enhanced, knowledge is shared, geographic limitations are overcome and social relationships and networks are maintained. In this context, it is important to understand how the poorest sectors of the population allocate their limited resources to make use of these services. This understanding will help to improve policy making in order to benefit the BOP as well as to consider equality criteria.

Research findings

From a statistically representative data set of Bottom of the Pyramid (BOP) consumers of Bangladesh, Pakistan, India, Sri Lanka, Thailand and Philippines, we find that mobile phone services have the characteristics of a ‘necessary’ service, which means that the poorest sectors within the BOP spend a higher share of their income in them when compared to the richest ones. For example, in average, the poorest quintile in India spends 24 per cent while the richest spends only 4 per cent.

Our results are also complemented by the calculated income elasticities, which indicate that these services are necessities; if total personal income increases in one per cent, expenditure in mobile phone services also increases (but by less than one per cent). This pattern is found for all six the countries mentioned above. But the sensitivity to changes in income varies from 0.18% in Philippines to 0.26% in India.

Policy implications/recommendations

Considering the expenditure patterns in mobile phone services, we see that:

If a fixed tax rate is charged, its effect would be more aggressive for the poorest sectors within the BOP, as they spend a higher share of total income in mobile phone services. Whatever tax rate is charged, the expenditure share in mobile phone services will be increased in a higher amount for the poorest than for the richest sectors. This regressive tax would further increase inequality levels.
From an economic point of view, luxury goods are to be taxed; hence, having found that mobile phone service is a necessity and considering the fact that the poor would be critically affected, the relevant authorities should try to avoid charging more taxes (current mobile phone taxes range from 7% in Thailand to 29% in Pakistan). Given that mobile phones are part of everyday lives and that they represent a need among other needs in modern societies, policies that foster and not hamper investment and industry growth should be designed and implemented.
At a large extent, these results reflect specific market conditions, particularly fierce competition among mobile operators. In mobile phone service sectors of our selected group of countries, price levels are considerably low and will most likely keep on this decreasing trend.
The use of data on total personal income especially when dealing with the BOP could entail measurement issues, as income may not be constant over time. Instead, total personal expenditure would be a better indicator since it reflects not only what an individual can buy with certain income, but also what he/she can buy either because of access to credit markets, remittances or savings. However, data on total expenditure is not available. Therefore, it is suggested that efforts should be made by authorities in order to collect better and more accurate data, considering that higher-quality data and indicators do contribute to better policy making.

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