Interested in analysing the financial feasibility or defining the business model of your technology solution targeting underserved communities?

Ungana-Afrika has released a feasibility analysis of a Village Connection trial that can be used as an example case by others when defining and analysing ICT based business models in base-of-the-pyramid markets.

Note that this is the executive summary of a Dwesa Village Connection business modelling and feasibility analysis. Follow this link to download the full report.

This work is licensed under a Creative Commons Attribution 2.5 South Africa License. The Commons Deed can be read at http://creativecommons.org/licenses/by/2.5/za/ and the legal code (the full licence) is to be found at http://creativecommons.org/licenses/by/2.5/za/legalcode

As a part of its strategy, COFISA (Cooperation Framework on Innovation Systems between Finland and South Africa), is promoting and supporting the internationally designed Living Lab concept. One of the focus areas for the Dwesa Living Lab, which is located in the Amathole district in the Eastern Cape, is to pilot the Nokia Siemens Networks Village Connection concept for affordable mobile connectivity in rural and under-served markets. The Village Connection uses an innovative technology and business model to reduce the capital expenditure as well as the operating expenditure for providing mobile services.

To ensure the long-term sustainability of the planned Village Connection trial within Dwesa, COFISA with the project partners decided to implement a short community-centric business modelling study before the planned installation and roll-out of the technology components. This report presents the findings of the study. The proposed business model applies to the unique conditions of the trial, and would need to be modified for a scaled implementation approach.

The partnership between the project stakeholders (COFISA, the Universities of Fort Hare and Rhodes, Nokia Siemens Networks and the Meraka Institute) adds great value, but there are some concerns. Many of the stakeholders would need to invest more time and resources into the trial than what they are likely to gain, unless the scalability of the Village Connection in the region is viable. It is also clear that because of the frequent changes in the project plan, there is uncertainty between partners over some areas of responsibility. These responsibilities should be formalised prior to implementation.

Community development projects in Dwesa align with national development agendas. This can make implementation much easier, and enable access to local, provincial and national development budgets. However, the socio-economic conditions in Dwesa are daunting and it will be a struggle for any initiative to become sustainable. The high number of failed initiatives serves as a warning not to underestimate the challenges.

Currently the staff and students from Fort Hare and Rhodes University are the primary source of technology support in the Dwesa villages. However, the ad-hoc support they can provide may not be sufficient if community members are paying for mobile services. There are individuals operating informally in Idutywa and Willowvale who might have the necessary skills to support the Village Connection installation. The technology specified by NSN for the Village Connection is very simple, and the support requirements should be minimal. The more the implementation deviates from this model, the more necessary and expensive technology support is likely to be.

For the Village Connection to operate formally, the local operator will need professional assistance to fulfil the statutory requirements. Some of these services are available from Willowvale and Idutywa, while others will need to be sourced more broadly.

It may be necessary to conduct an Environmental Impact Assessment (EIA) at each site where a GSM Access Point (GAP) is installed. This would add significantly to the implementation costs and scalability potential. Further investigation is recommended to determine whether an EIA is required.

The market size is affected by several factors, including the extent of coverage afforded by the GAP, the location and population of the villages in the area, the number of mobile phone owners, the effect of existing competition, consumer perceptions of the services offered, and income levels of the community. Based on the scenario of co-locating the GAP with the current Vodacom tower in Mpume, and taking into consideration affordability and coverage considerations, we estimate that there would be a minimum of 935 potential subscribers. There are also at least 346 current cellphone owners in the projected coverage area. With Vodacom's withdrawal, this scenario should be reviewed.

The extent of coverage that can be obtained is an important consideration for the Dwesa Village Connection trial. If the range is too small, it will be difficult to obtain enough subscribers to be sustainable. If necessary, the range should be increased by amplifying transmission power or increasing the height of the antenna. It is also recommended to place the trial implementation in a village with higher population, such as Nqabara.

Conclusions from focus groups and general discussions with community members are that the local calling afforded by the Village Connection is a desirable service which has value for the community. A monthly fee of around R30 is seen as reasonable.

Several possible governance structures were considered for the unique conditions of the trial, and a non-profit structure would seem to be the most appropriate. It ensures that the interests of the communities involved and also the external partners are considered, and leverages the local cultural knowledge as well as the external expert knowledge. Other models should be considered for scaled implementation. Investigation of the operating model showed that the skills necessary to operate the Village Connection are available but scarce, with business skills being of particular concern. Initial salary levels between R1,000 and R3,000 would seem appropriate for the operator.

The business model developed for the Dwesa Village Connection estimates a monthly revenue potential of R9,900. Set-up costs are expected to total R43,970. Cash-flow is estimated to be R-20,226.67 in the 12th month, necessitating an additional R25,000 in seed funding. Break-even point should be reached after 30 months of operation. Local sustainable operation should thus be feasible subject to some provisions:

• community members are able to afford the estimated R35 monthly subscription

• coverage is sufficient to incorporate a number of surrounding villages to reach 240 monthly subscribers

• seed finance is available with very friendly terms

• project stakeholders are willing to absorb their costs

• no franchise fee is paid to the GSM operator (at least until break-even is reached)

• the governance body will have to donate their time

• the need for external professional services is minimal

Because of the small margins involved and the importance of low-cost service delivery, small differences in revenue and expense projections can have a significant impact on profitability and whether break even can be reached. It will be important to monitor costs and revenues closely in order to stay on track.

If an operator can be found, proceeding with implementation is worthwhile. Even if operation does not continue beyond the pilot, it would provide sufficient value to the community through the services on offer and as a source of scarce employment and revenue. Piloting the Village Connection will also be the only way to fully evaluate the potential of the solution on a larger scale in rural South Africa.