This paper offers an assessment of the drivers of mobile phone diffusion in emerging markets. It addresses both demand- and supply-side factors and provides an outlook on the diffusion process going forward, as two or three billion more mobile users are accommodated by mobile networks in addition to today’s 3.5 billion subscribers and users .

The paper focuses on several specific issues, namely the relationship of mobile phone adoption to income levels and legacy phone service as well as the role of prepaid phones and asymmetrical interconnection fees in hastening mobile diffusion in emerging markets. It also analyzes the impact of different levels of competition on mobile phone adoption, indicating that the diffusion benefits may recede as the number of operators increases. Finally, it attempts to explain why mobile penetration has been higher in Eastern Europe than in Latin America and in China than in India.

Looking forward, the paper addresses the major challenges the mobile industry faces in extending mobile networks to rural regions in Africa, Asia, Latin America and elsewhere. The paper questions whether the market will be able to serve the last one or two billion potential subscribers or whether subsidies will be required, and notes the emerging use of infrastructure sharing and output-based subsidy schemes to foster rural network deployment. In also calls for research on mobile phone awareness and ability-to-pay levels among the world’s non-users and non-subscribers to help determine whether the recent 25% annual growth in worldwide mobile phone diffusion is sustainable.

Inputs to the paper include a literature review, comparative databases, the author’s studies of mobile adoption in individual countries, and the comments of reviewers of earlier drafts.