Developing countries' economic lifeline: the cellular phone Low-cost technology links remote areas


New York --Long seen as a luxury for harried Wall Street brokers and Hollywood wannabes, the cellular phone is recasting its image as -- of all things -- a vital economic link for developing countries.

About 60 countries have gone cellular, including 15 developing countries last year, when new technology and foreign investment pushed cellular phones into Zaire, Laos, Hungary and Bolivia. Today, such phones have become crucial connections between village and capital, remote mine and rescue service.

The attraction lies in their cost, which can be half that of a wire telephone system, and their low maintenance requirements. With casing to rot, copper cables to be stolen or lines to blow down, cellular phones have become a rough-and-ready way of providing basic service for countries on all continents.

"They've found they can install cellular faster and cheaper than the ordinary telephone," said Herb Maher, an industry analyst with Hancock Institutional Equity Services in Boston. "You literally don't have to run wires through a neighborhood."

Cellular technology has been adapted to the needs of developing countries. Hand-held sets are popular among foreign businesspeople who cannot wait the years it often takes to get a standard phone line installed. In China, more than 100,000 cellular phones are being installed to serve the country's booming coastal economy.

More often, the cellular systems link remote towns and villages with bigger cities that have traditional telephone service.

Instead of being part of a hand-held receiver, the cellular systems often are located atop pay phones or buildings. And the cellular phones have a 20- to 40-mile radius, so the signal can be beamed via satellite to an existing telephone system. Or a net of interlocking cells can link remote regions to a city.

"Here, it's a supplement," said Liz Hamburg, a spokeswoman for Plexsys International Corp., a Washington company that has built cable systems in 20 countries. "Overseas, it's a substitute."

Plexsys, a private company that releases no financial figures, is one of several small U.S. companies that have specialized in providing cellular technology to Third World countries. Another is Interdigital Communications Corp., a $42 million company in King of Prussia, Pa.

Interdigital, which has set up cellular systems in Mexico, Indonesia and China, has seen revenue increase steadily, although it has yet to make a profit. On Wednesday, the company said it lost $22 million last year, partly because it purchased a rival and has been unable to make its phones cheaply enough.

Investing in growth

"We've been investing in the technology and now in the markets where there is growth, so there hasn't been profit yet," said Marsha Bexley, a spokeswoman for the 12-year-old company.

Another U.S. company that hopes to capitalize on the growing cellular market is Universal Security Instruments Inc. of Owings Mills. Also suffering from a poor financial performance recently -- the company lost $186,000 last quarter -- it has joined a Hong Kong company in a joint venture to develop and produce cellular phones in China.

Although small companies have been at the forefront in building cellular systems in the developing world, the Baby Bells are using their financial muscle to enter the field.

Most recently, US West Inc. has moved into Hungary, where it has 22,000 customers, and into the former Czechoslovakia, where it has 6,000 customers. This year, the Colorado-based company plans to expand into Russia and Lithuania.

The biggest market for cellular phones has been the former East bloc. Besides Eastern Europe, the Commonwealth of Independent States is adding cellular systems to attract foreign investors. Tartarstan, in Russia, will install 50,000 lines within six months to try to attract foreign oil explorers.

vTC The trend is also evident in Africa, South America and Asia, where systems are being installed by booming countries eager for a telecom quick fix and poorer ones hoping for basic links to remote areas.

For countries that are less-developed than the former East bloc, a basic system with 500 phones costs less than $5 million and can be set up in a matter of months, Ms. Hamburg said. The system can be expanded to meet new demand.

Lebanese government's role

In Lebanon, the government decided this year to rebuild its war-shattered infrastructure by installing a cellular system that would accommodate 500,000 cellular lines within 10 years, said Rafic Bizri, director of the Hariri Foundation, a Lebanese think tank in Washington.

"To rebuild the existing service would cost a lot -- it is not feasible," Mr. Bizri said. "Therefore, we have decided for the most modern system -- a cellular system."

The Lebanese government, which is still receiving bids, does not want to discuss how much it would pay for a cellular system. But industry estimates put the cost of a cellular system at $1,000 a line. That would make Lebanon's system worth about $500 million -- high if the lines were concentrated in one city but a bargain as a phone system for an entire country.

Laying phone lines in a country such as Lebanon would cost two to three times as much, industry experts say. And with the greater potential for terrorist attacks and the greater need for maintenance, a wire-based telephone system would be more expensive to keep running.

Between cellular's invention in 1979 and 1985, countries that installed cellular systems had a per-capita gross domestic product of $15,000 -- meaning that only the United States, some countries in Europe, Japan and a few other Asian countries had cellular systems, according to Herschel Shosteck, who tracks the cellular industry from his Silver Spring consulting firm.

By 1991 and 1992, the average cellular user's economic power had dropped to $1,600. By the end of the decade, when 75 percent of countries should have cellular phone systems, it should average $600.

"Cellular isn't just for busy executives," Mr. Shosteck said. "It's revolutionizing many countries' telecommunications."

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