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Under the current arrangement, the mHealth Tanzania-PPP is funded by public money (from international donors), and the service is enabled by the charitable donation of SMS messages by the MNOs. Given the government’s position that the service cannot be charged for, and the increasing role of the MoHCDGEC in the delivery of the service, it is not likely that any shift towards a more commercial business model will take place in the foreseeable future.

The costs of developing the Wazazi Nipendeni service have been covered by CDC, as part of its public health programmes. The costs of developing the additional nutrition content have been covered by the mNutrition programme. The service is funded and regarded as providing a public good, which it undeniably is. However, the quantitative study has shown that the MNOs are reaping tangible, if indirect, financial benefit from the service. This section considers the value of this benefit to partner MNOs under the current arrangement.

Financial reporting by the mHealth Tanzania-PPP quantifies the financial contribution made to Wazazi Nipendeni by each of the supporting MNOs. It does this by estimating the number of SMS messages donated by each MNO and then multiplying that by the consumer retail price of SMS messages. In the absence of any payment to Wazazi Nipendeni for the content, the cost of

Mobile phones, nutrition, and health in Tanzania: Business modelling endline report

messages is the only variable cost, but it varies between MNOs according to the different SMS retail prices.

The quantitative research found that ARPU was TZS 510 higher among people who used Wazazi Nipendeni (compared with those who did not use the service). Given an ARPU of TZS 5,300 per month (£1.90 /month) among the control sample, this indicates that the VAS stimulates a 10%

increase in ARPU. This is supported by the finding from the qualitative research that women became more comfortable and confident in using their phone when they received messages from Wazazi Nipendeni, implying that they then used their phone more, using more airtime.

Given the user growth profile in Figure 11, the contribution margin flattens out at 24% (see Figure 12). The cost of SMS messages is directly proportional to the number of active users. However, the cost of USSD sessions relates to the number of new users, which is assumed to be constant despite monthly fluctuations. At high user numbers, this cost component becomes a much smaller proportion of variable costs, dropping from 9% of variable costs in Year 1 quarter 1 to 1% of variable costs in Year 4 quarter 4. This explains why the contribution margin is lower at lower user numbers.

Note that the variable costs in Figure 12 are based on the aggregated costs across all four MNOs, each of which has been allocated different charge rates for SMS messages according to their retail prices (at baseline). Table 3 shows the sensitivity of contribution margin to SMS price (at high user numbers).

Figure 12: Contribution margin

Source: Authors

Mobile phones, nutrition, and health in Tanzania: Business modelling endline report

Table 3: Contribution margin for each operator (asymptotic)

MNO partner SMS price (TZS/SMS)¹⁷ Contribution margin (Year 4)

Vodacom 57.6 29%

Airtel 69 15%

Tigo 79 3%

Halotel 33¹⁸ 61%

Source: Authors’ own

The price attributed to sending SMS messages is clearly highly influential in determining how attractive their contribution to Wazazi Nipendeni appears to operators. So what is the cost to an operator of sending an SMS? In a study on the impact of consumer consumption of network services (voice, SMS, and data) on network profitability, Blackburn et al., (2013) highlight a trend towards flat-rate pricing (as opposed to pay as you go). They point out that one feature that makes this attractive to operators is that the cost of delivery is a small fraction of the retail price. Keshav (2009) concluded that the cost of sending an SMS message was likely to be less than

$0.003/SMS, or 2% of the per unit price charged to pay as you go customers (in the USA). Lack of clarity on the true cost of sending SMS messages continues to plague development cost

modelling. For example, in a study of an mHealth intervention in Tanzania, Mangaone et al., (2016) modelled scenarios using standard SMS charge rates ($0.03/SMS), along with reduced rates ($0.02/SMS and $0.01/SMS), representing negotiated bulk purchasing agreements.

The analysis up to this point has been based on the retail prices given in Table 3, which can be interpreted as representing an opportunity cost to the MNO. However, given that MNOs are sending out messages to thousands of users, it could be argued that a bulk SMS price would be more realistic. A price of TZS 25/SMS, for example, would give a contribution margin of 70%. If, on the other hand, there is no real cost to the MNO of sending SMS messages, then the contribution margin tends towards 100%.

The contribution margin is a measure of how much a product contributes to fixed costs and thereby to profit (once fixed costs are covered). However, it takes no account of any investment made in developing a product, so it cannot be used as a predictive measure of the likely financial viability of developing a product; IRR is widely used for this purpose.

The model indicates that over a four-year period, mobile operators donate texts and USSD

sessions totalling a nominal value of £3.9 million. However, over the same time period, the indirect benefit of ARPU sums to a total of £5.1 million, which represents a real financial gain.

The other indirect benefit often credited to VAS is a reduction in churn (Tricarico, 2016). However, the quantitative research did not find any evidence that people using the Wazazi Nipendeni service had owned their SIMs for longer. Prepaid markets tend to have high churn rates because

consumers are not ‘tied in’ to contracts; the Tanzanian market is predominantly prepaid so high churn rates might be expected. However, in rural or underserved markets where signal coverage is poor, consumers often find themselves effectively tied in to a single operator by virtue of being able to access only one network in their geographical location. Therefore, churn tends to be lower in rural areas. The quantitative study was carried out in Iringa, which is a largely rural district, so it is not surprising to find low rates of churn, making it difficult to measure any differences in churn.

17 From mHealth Tanzania-PPP financial report 2017.

18 Halotel was not a partner in 2017 so was not included in the financial report. This is the price given on the website (accessed September 2019).

Mobile phones, nutrition, and health in Tanzania: Business modelling endline report