Business models like Grameen Telecoms Village Phone Programme have huge potentials to tap a US$ 5 trillion market worldwide as a study measured on the basis of purchasing power of four billion people living in relative poverty. International Finance Corporation (IFC), the private sector arm of the World Bank Group, and World Resources Institute conducted the study released in Washington DC on March 19.

The report titled The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid (BOP), for the first time measured the size of markets at the base of the economic pyramid using income and expenditure data from household surveys. It described the Grameen phone programme as an innovative business mode shared access, in which an entrepreneur with a phone provides pay-peruse access to a community that has extended the social and economic impacts of mobile phones beyond the subscriber base.

In Bangladesh, the study said, Grameen Telecoms village phone entrepreneurs now serve 80,000 rural villages, generating more than US$100 in monthly revenue per phone by aggregating the demand of entire villages. In another instance in South Africa, the study found that more than half the traffic on Vodacoms mobile network in 2004 came not from its 8 million subscribers but from 4,400 entrepreneur-owned phone shops where customers rent access to phones by the minute.

A strong value proposition for low-income consumers has translated into financial success for mobile companies, said the study, adding that the analysis is complemented by an overview of business strategies from successful enterprises operating in these markets. It said accurate data on market potential provides a foundation for private sector engagement that can drive down what the report calls the BOP penalty, where poorer people often encounter goods and services that are more expensive, of low quality, or difficult or impossible to access.

The report seeks to help businesses think more creatively about new business models that meet the needs of these underserved markets. According to the report, the BOP markets are often rural, underserved, and dominated by the informal economy, and as a result are relatively inefficient and uncompetitive. As greater numbers of formal firms compete to redress the BOP penalty, the poor experience a direct increase in quality of life. As the report describes through business case studies and data, the penetration of mobile telephony into these markets is a classic example of how competition can drive such improvements.

The report backs up the calls for broader business engagement with the base of the pyramid, stressing the need for the private sector to play a greater role in development, said Michael Klein, World Bank/IFC Vice President for Financial and Private Sector Development and IFC Chief Economist. The report also highlights the need for governments to pick up the pace of reforms to the operating and regulatory environment, so that it becomes easier to do business, he added.

The report characterises the base of the pyramid markets by sector. The sector markets for 4 billion consumers range from relatively small such as water ($20 billion) and information and communication technologies ($51 billion) to medium-scale markets such as health ($158 billion), transportation ($179 billion), housing ($332 billion), and energy ($433 billion), to truly large markets, such as food ($2,895 billion).