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From Alexander Nash
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Re: Mobile telephony vs rural water supply

Response to

Anambra State in Nigeria, where there are no public water services of any kind (last time I checked) provides an interesting case study.

Water services are provided by borehole and tanker, by entrepreneurs / private operators, often under contract with town councils. The private sector does not appear to be interested in laying piped networks, although it is clearly a more efficient way of delivering water than by tanker. Why do you think this is the case?

I’d propose some things which are striking about this “natural experiment” in rural (and urban) water provision

1. It’s low capex / low fixed cost, high opex / high variable cost
2. What capex there is can be moved (apart from the borehole casing). Pumps, gensets and trucks are all mobile assets.
3. It’s a profitable business which attracts investment and makes full cost recovery (plus profits)
4. It’s competitive and delivers a good service for customers (who all have the number of a tanker driver)
5. It’s economically inefficient and has few economies of scale, customers all need water tanks etc.

Here is an idea:

Mobile telephony has high capex / fixed costs, but note that assets are mobile. You can actually disassemble and move towers (albeit at a cost). The expensive (I assume) parts of the kit (generators, transmitters, etc) are also mobile.

Perhaps the inhibiting factor in piped water supply is the pipe? The device which offers considerable economies of scale and productivity gains also massively increases the risk for the operator, because her “capital” is buried and uneconomical to remove (and liquidate). So piped water supplies are very vulnerable to expropriation / political predation. Because of this, private investors simply don’t build them, despite the high returns to scale.

Another potential reason is that mobile assets offer better security for financing. However I can’t imagine many formal financing institutions are involved with these suppliers, and informal finance could probably be mobilised for pipes if there were demand for it. I suspect supply of finance / security is not the problem here.

Of course, public investors can (and do) build piped networks – but public institutions suffer from principal-agent and patronage problems which (usually) defeat them. Saying that we should “focus on service quality” misses the point that these institutions cannot focus on service because they do not employ people based on their ability to deliver services, they employ people based on who they are (patronage). They do not attempt to resolve principal-agent problems because service delivery is not their raison d’être – patronage is. Everyone in the sector knows this – but because it’s not something that outsiders can fix we like to focus on (i.e. invent) “problems” we can fix. This keeps us employed, after all (speaking of principal-agent problems…).

I don’t think this is about the weight of water, capacity, training, lack of finance, logistics, supply chains etc. None of those things stop coca cola (or mobile telephony), or the many profitable water operators of Anambra State and elsewhere.

It’s about a public institution (government or a CBO) actually being able to deliver a service itself, or allowing a private operator to invest in pipes without the threat of expropriation (what you refer to as an “enabling environment”). Neither of these problems – which would allow effective public or private provision – can be solved by outsiders.

So, given we can’t seem to leave this problem alone, what could we do to help?

Have you (or has anyone for that matter) ever tried funding the risky part of the investment (the pipes) for existing private water suppliers? Just pay for some pipes for an existing borehole guy (in South East Nigeria, say) and see what happens. It might be that repairing / replacing the pipes doesn’t happen because of the long payback time / risk of expropriation. But then we would at least know what we are up against – a question of property rights and political predation. Community work could then be focused on defending property rights rather than (say) workshops on O&M or book-keeping. There are millions of small businesses with electro-mechanical assets in Africa that run perfectly well without ever having attended an O&M or book-keeping workshop… To give one example, a miller I met in Nigeria explained his O&M (and return on investment) cost model: “One third of revenues for the machine, one third for the owner, and one third for me”.

It doesn’t really need to be more complicated than that, and so I don’t think “capacity” is the problem here, but “capacity” is what we outsiders bring and so we are keen to make it the problem.

Specific responses

Water is heavier than airtime...
One cubic metre of water weighs one tonne; one cubic metre of electromagnetic radiation passing through the air as a mobile phone signal weighs nothing
True. But water is not heavier than coca cola and yet coca cola has better coverage than piped water (as does bottled water, beer, etc). Delivering a cubic meter of coca cola costs a LOT more than delivering 1m³ of piped water... so this is not about weight. Weight is irrelevant to the more successful delivery of mobile services as well. It's about value to customers and investment risk faced by the supplier.

Unlike a mobile signal, which a transmitter can generate anywhere, water operators cannot simply produce water from scratch.
Mobile signals are not “generated from scratch” they are generated from electricity, which in turn needs heavy diesel or power cables, solar panels, etc. These items aren’t produced “from scratch” either.

Often water is not where people need it, so must be transported
Water is always (reasonably) close to where people need it, because if there was no water, there would be no people.

3G doesn't need pipes
Anyone within a 32km radius of a mobile phone base station can access mobile services with nothing more than a handset.
Again, handsets are not free. Why are people prepared to pay for a handset but not a water pipe? Are pipes much more expensive? (coming back to cost) or is it something else (ownership, control, trust etc.)?

Mobile coverage can be managed centrally
Mobile service management and maintenance is highly centralised around base stations and national-level data exchanges.
Mobile base stations are decentralised by their nature. So are water supply systems. Management of both can be centralised (Western Australia has one water authority which manages an area the size of western europe). That is a “highly centralised management and maintenance structure” – just the same as the mobile phone companies which cover the same area with all of their highly dencentralised base stations (but highly centralised management). There is no intrinsic difference here – rural water can also be managed centrally.

The service provider has full control over access to mobile
Service control is in the hands of the mobile provider, who can be confident they will not lose their market share because people are drifting to their own makeshift mobile service options.
Of course they won’t. They’ll just change mobile service. Mobile service providers do not have full control over access to mobile – they face competition from other providers.

Water users, however, have the option to dig their own wells or collect water from rivers and lakes. Where piped water supplies cost money, but water from hand pumps and wells is free, people generally opt for the latter, which makes revenue collection more difficult for piped scheme operators
Digging water from a well or collecting it from a river or lake is not “free” – it costs time, which has a value. If people valued their time at nothing, informal markets for water would not exist (water carters etc). Water providers face “competition”, just like mobile providers, but from a wider range of sources. Neither water providers nor mobile providers have a good which is “substitutable”. But if anything, demand for water (from all sources) will be much less elastic than demand for mobile telephony because of its essential nature.

Asset management and greater potential for competition
When mobile operators started out, they all built their own base stations. Some had coverage in certain areas, others didn’t. Now they are increasingly pooling their assets by selling base stations to third party companies who take on their management. These companies rent space on the base stations to different networks, allowing them all to reach a wider area. This stimulates competition between providers, which drives down prices for users.
The economics of mobile telephony is similar to water supply – essentially both businesses are about high fixed per customer “connected”, low variable costs for serving them water or airtime. Both are natural (technical) monopolies. Leasing assets and using third party operators / maintenance crews can be (and is) done in the water sector. Competition between asset management service providers is used by water utility monopolies to drive down prices.

Attractive investment opportunities
Mobile markets are relatively new territory, providing exciting investment opportunities for fund managers. Rural water, however, is not a new business area, nor has it been an attractive investment opportunity.
These are not causes for why rural water supply is less successful, they are consequences. Why is mobile telephony a better investment?

Bad for business
No mobile operator would construct a base station and hand it over to a remote rural community to manage without a fairly sophisticated ongoing service support mechanism.
Do any operators hand over their base stations to communities to manage at all? Would that sentence be more accurate without the words “without a fairly sophisticated ongoing service support mechanism”? It feels like “handing over to a community” is a sine qua non for rural water supply. However the idea never even crosses the mind of mobile telephony operators – why not mention that instead of alluding to the idea that they do hand over to communities “but provide sophisticated ongoing support services”. They don’t. It’s like saying Santa Clause would never fly without Rudolph. We’ll no, he wouldn’t.

No mobile operator would continue implementing a repeatedly failing model of service provision without revising it.
True – only an institution which did not depend on customer revenues could (and therefore, would) do that (such as an NGO or Government). See “handing over to a community” above.

urgently need to become the focus for those involved in providing services,
So providing a better service needs to be the focus… Why is it not the focus?