Brazil is the fifth-largest mobile market in the world, behind China, the United States, Russia, and India. Even so, mobile penetration in Brazil is lower than in many other Latin American countries, such as Chile, Colombia, Argentina, Panama, Venezuela, and most of the Caribbean.

A city located in northern Brazil, Quixadá, with about 75,000 inhabitants, looked like a perfect opportunity to Ruralfone, a US start-up firm that invests in niche markets bypassed by major operators.

Ruralfone’s business plan is to offer low-cost telephony in low-income regions, which it does in Brazil through its start-up, Local Telecom.

Dennis Côté, president and chief executive of Ruralfone, calls the markets his company aims for “non-central.” That, he says, does not mean they are not profitable.

Today, Local Telecom has one of Brazil’s highest EBITDAs, coupled with high usage and one of the lowest tariffs in the world. This is made possible by a no-frills, pre-paid GSM wireless service that is based on the existing local telephone switches.

By sourcing equipment domestically, by not stocking phones, and by hiring workers locally, the operator is also able to keep down costs. In 10 month of operation the cash flow was positive.

Since Local Telecom started operations in May 2005, more than 2700 subscribers have signed up for the service – about half the number of customers served by Quixadá’s local telephone company. It is an impressive figure in an agricultural economy located in Brazil’s dry plains region, where GDP per capita is about USD 1,230.

So Ruralfone has been taking its business model elsewhere.

“We have expansion plans for other cities throughout Brazil – around 100 all told – copying the same successful formula developed in Quixadá,” Côté says.

In December 2006, Local Telecom rolled out mobile communications in Quixeramobim, a neighboring city with about 60,000 inhabitants. More than 500 customers had signed up for service as of March, 2007.

An innovative marketing strategy has proven key to Local Telecom’s success thus far.

Valéria Andrade, the operator’s commercial manager, says door-to-door sales make it easier for customers to access the service.

“This is a very efficient method; 90 percent of our subscribers signed up through this sales channel,” Andrade says. “We have reached our objective of providing communications for everyone.”

Quixadá’s local economy is already seeing the results of the investments made by Local Telecom.

A local business owner, for example, reports that sales volumes and revenue at his small pharmacy have risen since he started using a mobile phone. The pharmacy owner now receives calls from customers who purchase his medicinal herbs via the mobile phone, without having to leave home.

His rising income helps him pay off a loan on a used car, which he uses to deliver medicines to customers’ homes. He is also able to improve his own quality of life and that of his nine children.