Is this the next digital divide?

There is a growing separation between two classes of cellphone users. On one side, we have the fully digitised, smartphone-equipped elite. And on the other, we have the feature-phone mass market. With the capabilities of smartphones steadily increasing, the divide between the smartphone elite and the masses is widening.

This class distinction was clearly illustrated at the recent Mobile World Congress in Barcelona, Spain. The focus was so heavily on advanced smartphones and high-speed LTE networks that an outsider could have been forgiven for assuming that was the full picture of mobile communications today.

In the most developed western Europe and American markets, smartphone penetration has passed the
tipping point, with over 50% of market share. That is now growing faster, especially with low-cost smartphones now in the same price ballpark as midrange feature phones used to enjoy ($100 buys you a basic Android smartphone).

In South Africa, the difference is greater, but the acceleration is higher too. “Twenty one percent of SA cellphone users use smartphones, more than double the fi gure a year ago,” said Arthur Goldstuck, MD of World Wide Worx.

But where the assumption in western, Eurocentric markets is that over time all users will migrate to smartphones and become data consumers, South Africa does not mirror that trend at all. “In SA we live in both worlds. We have very different market segments. There’s the digitised high-end user, the traditional prepaid voice user, and the aspirers somewhere between the two,” says Chris Ross, managing executive of commercial development for Vodacom. “That is very different to a Eurocentric view. We live in both markets.”

South Africa, then, is strongly divided into those with smartphones and those without, and the two groups are diverging further every day. Should that be a cause for concern? Do non-smartphone users risk being left behind or excluded from services?

Probably not. This is different from the classical digital divide, which separates users based on their ability to access empowering information services, and almost immediately translates into a lack of opportunity for the have-nots. Broadband outreach initiatives around the world are driven by governments and private sectors working to bridge that sort of divide to avoid that digital poverty.

In the mobile communication space, that is not the case. The smartphone elite does not have access to much the mass market does not (Angry Birds doesn’t count). Both have access to the same telecom networks, and the same fundamental modes of communication – voice and text. Both can interact with key services like banking and e-government, in part because the service providers know full well that they have to tailor those services to both camps, and have been working for years to do so.

The jump from no phone to any phone is enormous, opening the door to a world of communication. The step from feature phone to smartphone is much more modest. Being part of the smartphone club may not mean you have access to services fundamentally different from your feature phone neighbours, but it does mean you are a completely different customer to the networks, with completely different needs and business models.

ALL ABOUT THE DATA

“Smartphones are all about data,” says Vodacom’s Ross, “and data users use exponentially more: it’s like a drug. You might start with WhatsApp but you’re soon on to Facebook,” he says. “Although the margin per megabyte might be less than the margin per minute, the volume makes up for it.”

And that’s another key difference between the classes. Smartphone users use apps. Lots of apps, the iPhone and Android app stores both boast over half a million apps – it’s a market segment many analysts are watching with keen interest. App publishers stand to win – Rovio, the maker of Angry Birds, made over $100 million from the game last year – but so do network operators. “Network operators love app stores because they drive bandwidth. We can find more reasons for you to use your phone and use data, all I have to do is introduce you to an app store,” says Ross. “We even launched our own app store to make it easier. You can just use your phone account to buy Android apps or Java apps for feature phones. We’ve done over a million downloads already. And we’ll have BlackBerry apps shortly too.”

GET ON BOARD

The smartphone elite is not a particularly exclusive club. It is clearly demarcated - visit any cellphone shop and you’ll see a very clear distinction in the products advertised. Contracts, with smartphones, and prepaid feature phones. There is still the economic barrier of course: even the most basic smartphone is an order of magnitude more expensive than a cheap feature phone. “Entry level” means very different things in different markets. A cheap feature phone costs R79, an entry level smartphone costs around R800.

Contract vs prepaid does not imply anything about the user, Ross notes. There are plenty of data-hungry
smartphone users who prefer prepaid in order to manage their expense more easily. And many contract users stick with a feature phone line. Their economic standing is entirely irrelevant, yet they will still, by and large, fall into the smartphone/non-smartphone classes. The distinction is about usage, not LSM.

The smartphone price range, from under R1 000 to many thousands for a high-end model, may still be out of reach of many aspirational users but does broaden the target market.

In the workplace, a considerable barrier to entry has the resistance from IT departments, which is rapidly diminishing, with smartphones and tablets now commonplace around boardroom tables. Improved support for business features is helping drive adoption, such as remote wipe, encryption, and integration with enterprise applications. Motorola’s new Razr includes a neat hybrid storage approach, allowing personal data to be segregated from corporate data, and excluded from a remote wipe. Manufacturers are responding quickly to the changing wants and needs of professional users, as distinct from consumers.

Smartphones are going to dominate the mobile phone market abroad, but the divergent user groups in emerging markets are unlikely to change for the next several years. That poses challenges for operators and regulators, but also opens opportunities for service providers. Smart ideas like M-Pesa wouldn’t have existed if everyone could do Internet banking from their smartphone.

In the end, though, it’s going to be smartphones everywhere. If you are already among the smartphone elite, welcome to the next generation.