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Making dumb phones smart

Vodacom wants to get smartphones into the hands of the masses.

BY  Hilton Tarrant , 1 September 20100 comments

Pieter Uys, Vodacom, wants users to try lower-end smartphones before aspiring to iPhone or Android devices.Pieter Uys, Vodacom, wants users to try lower-end smartphones before aspiring to iPhone or Android devices.


A R999 smartphone. It’s the Holy Grail for Vodacom. Not a high-end device like an iPhone, Samsung Wave or BlackBerry Torch that would require you to pay in R999 on a costly 24-month contract. Rather, a device that offers smartphone functionality that will retail for R999.

At a briefing in June, Mark Taylor, managing executive for terminals, online and financial services at Vodacom, asked pointedly: “How do we move the market to the bottom of the pyramid?”

It’s a question on the minds of the executives at Vodacom.

“For the past 18 months, we’ve been thinking about how to drive down internet access to the masses, and we mean the absolute masses,” says Taylor.

Group CEO Pieter Uys is almost wholly focussed on driving data adoption and the company’s results illustrate a strategy that is beginning to pay off.

In the three months to June, Vodacom South Africa’s data revenue increased by 43 percent to R1.3 billion, with traffic growth up 55 percent.

It saw a “more than 50 percent growth in smartphones” in the quarter.

But for the growth to continue, it needs to begin driving data adoption downwards.

It’s about “changing the thinking of the bottom end” of the market.

Uys wants consumers who have never used the mobile internet before to “start using the technology” before aspiring to the iPhone or Android devices.

Right now, ten percent of the devices on its network in South Africa are “smartphones”, devices that offer fairly advanced e-mail and internet connectivity.

The aim in the next 12 months, according to Taylor, is to increase that to 15 percent.

If you include 3G modems in the calculation, he wants to see the figure at 20 percent.

Already Vodacom retails a fairly basic handset for R79 at Pep. The phone comes with SMS capability and an FM radio. A step up in price sees a camera added.

But how do you catapault smartphones into that league?

Its new parent Vodafone group, which gives it the scale to be able to retail feature (dumb) phones at R79 ($10), offers the same scale for higher-end devices.

Firstly, the Vodafone Equipment Company is able to source millions of devices from handset manufacturers on a global basis, offering group companies a massive pricing advantage.

Perhaps more importantly, Vodafone works with certain manufacturers to develop its own branded handsets.

No dumb phone

Last year, Vodafone released 16 new models under its own brand. It has another six on the horizon for the global market, in addition to the handful or two it’s already launched in 2010.

Vodafone says its scale offers “low cost combined with high-end features, such as touchscreen and mobile internet capability… enabling millions of people in emerging markets to share the benefits of mobile technology.”

Taylor is excited about two specific devices.

The first, the VF546, is made by Chinese manufacturer ZTE. The phone is already in stores retailing at R599, and “allows for internet access, e-mail and synchronisation”.

High-end smartphones typically retail for at least ten (sometimes 20) times that much.

The VF546 comes preloaded with the Opera Mini browser. This is no dumb phone. It has a Qwerty keyboard, micro-SD support, FM radio and a two-megapixel camera – features not unlike those found on many Nokia E-series handsets from just 12 months ago.

Right now, ten percent of the devices on Vodacom's network are "smartphones"; the aim in the next 12 months is to increase that to 15 percent.

Taylor becomes even more animated when he talks about the new VF845 (manufactured by Huawei). This is a full touchscreen smartphone running Google’s Android operating system. 3G? Check. WiFi? Check. Add a three-megapixel camera, full browser and document viewer. This phone retails for R1 399.

Think about the possibilities of the mass market buying this on a clothing store account and paying it off over six or 12 months. Suddenly smartphones are affordable.

“Now you’re getting devices that 12 months ago cost R2 500 coming down to this entry level,” says Taylor.

The target price point is “R999”, he adds.

There are touchscreen devices (without 3G) on the horizon too, which would ship at $44 and retail at around R550.

The prices of other higher-end hardware like 3G USB modems illustrates what we’re about to see in the smartphone space.

Modems “cost R1 299 12 months ago and are R449 now,” says Taylor. This will surely aid Vodacom’s push into the mass market.

“At R449, I would be surprised if we don’t sell around about 40 000 modems per month.”

Compare this to last year, where the country’s biggest mobile operator was “moving about 15 000 to 18 000 a month”.

This all adds up to “much bigger penetration into customers who are able to access some sort of data, internet services,” explains Taylor.

“We would never have got modems down to R449 if we didn’t have the drive and support of the Vodafone group,” he comments.

Handset manufacturers are also begging to take the lower end of the smartphone segment seriously.

“They are starting to get there,” says Taylor.

“The BlackBerry 8520 has been a resounding example of things done very well to get market penetration,” he adds.

It’s been Vodacom’s number-one selling smartphone in recent months.

Taylor says it currently retails for R2 300, when only four or five months ago, the price was R2 800. He sees it breaking the R2 000 mark by Christmas.

He points to the Nokia 5800 and 6210.

“All of those smartphones are still doing very well in terms of volume.”

Between April and June last year, Vodacom’s first fiscal quarter, it sold 130 000 smartphones. In the same period this year, it’s doubled that and shipped more than 260 000.

He reckons that one could “see things in the prepaid space starting to play a role … opening up the market to a wider segment”.

“The next step,” says Taylor is to “actually get customers to buy more data bundles.” He easily admits that Vodacom hasn’t “done a good enough job of it yet”.

Coupled with that is the heavy marketing of Opera Mini. The spend has paid off, with 1.1 million people downloading the browser on their phones.

“Once they’ve got used to browsing and the rendering of the internet on the handset, it encourages customers to do more,” says Taylor.

Opera Mini is not just about better rendering for consumers; it’s also a “lot more efficient” for operators.

Globally, 59.4 million people used Opera Mini in June, 27.3 billion pages were served and 3.8 petabytes of operator data were compressed for Opera Mini users. The browser’s 90 percent compression rate saves worldwide consumers around $10 billion per year in data bills.

Devices that 12 months ago cost R2 500 are coming down to this entry level of R1 399. Mark Taylor, Vodacom.

Global lessons

Opera has also calculated that Opera Mini “generates more than $1 billion per year for operators globally”.

Taylor also mentions the efficient BlackBerry service that compresses data. This offers consumers a “lot more usage for the same price”.

The percentage of consumers who have downloaded Opera Mini and then taken a data bundle is still “very small” says Taylor.

Vodacom is busy with development in Opera Mini and its VLive portal, which will ask “customers if they’d like to move to a data bundle”.

He says Vodafone’s global online team were here recently and the South African operation is looking at the business models they’ve used.

“Turkey and India have done very well, and we’re taking from those global lessons.”


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