The Price Sensitivity of Mobile Use Among Low Income Households in Six Countries of Asia

Abstract

The private sector in developing countries is increasingly interested in extending mobile telephony services to low income and rural markets that were previously considered unprofitable. Determining the right price is a central challenge in this context. Despite known limitations, the Contingent Valuation (CV) method, which elicits information on the Willingness to Pay (WTP), is a useful guide to pricing decisions. The present study draws on data generated using the CV method to examine whether mobile use is sensitive to small declines in the current per-minute price of use for low income households in six countries of Asia: Bangladesh, India, Pakistan, Philippines, Sri Lanka, and Thailand. A Heckman model is used to correct for the sample selection problem arising from the study of mobile phone owners alone. We find that demographic criteria, including income, are not significant in explaining whether usage is responsive to price fall, although they appear important in determining mobile phone ownership. Instead, subscription to multiple service providers has an important association with the price sensitivity of use: Those with multiple SIM cards are likely to increase usage when price falls whereas those who report that they would not switch service providers are unlikely to do so. The study further finds that consumption would increase among those with a more diversified use of mobile services (to participate in competitions and to access government services) and among more ‘limited’ users (those who attach a greater importance to the emergency uses of the phone). Overall the findings suggest that there exists a latent demand for mobile minutes among low income households that can be tapped through a small reduction in price. However, given the relatively low profit margins in these markets and the ability of users to switch between service providers quickly and at low cost, competing on price could threaten the long term survival of firms. Non-price strategies would therefore be important for firm survival and sustainable service delivery.