Are operators fleecing you on SMS

Fifteen years ago when mobile phone services were launched in the country, operators used to charge Rs 16 per minute for phone calls and Re 1 for every SMS sent. Over the years as competition increased and as costs went down mobile tariffs for voice calls kept falling. Voice calls can now be made for as less as half a paise a second making it the lowest tariffs in the world. However, despite so much competition in the mobile market, SMS still continues to be charged at Re 1.

This can happen only if for some reason the cost of sending an SMS has not changed over the years. But is that the case? Mobile network comprises of various components such as routers, switches, radio antennae, core and signalling. Operators spend billions of dollars to set up this infrastructure and charging consumers is the only means to recover the cost. In the case of a voice call, the entire mobile network is activated from the time a user presses the green button on the handset till the conversation ends. However when you send an SMS, only the signalling part of the network is utilised. Logically, the cost of sending an SMS should be just a fraction lower than transmitting a voice call.

According to data submitted by a leading mobile operator to the Telecom Regulatory Authority of India, the cost of sending an SMS is just one-fifty sixth of the cost incurred for carrying a phone call. This means that if operators can offer voice calls at an average of 50 paise a minute, SMS should actually be free.

A standard SMS message comprises of 160 characters which is just about a tenth of a kilobyte. With a tenth of a kilobyte you could fit 1/4000th of a song on it, which is simply nothing. Operators, therefore, assign only limited bandwidth on the signalling channels that carry SMS. That's why in a situation of massive usage of texting which happens on Diwali and New Year's eve, the control channel gets saturated.

Professor Srinivasan Keshav at the University of Waterloo in Ontario showed in a paper that wireless channels contribute about a tenth of a cent to a carrier's cost, that accounting charges might be twice that and that other costs basically round to zero because texting requires so little of a mobile network's infrastructure.

Keshav concludes that a text message doesn't cost providers more than 0.3 cent

So why are operators charging you Re 1 when the actual cost is close to zero? That's because mobile operators in India earn close to 8 per cent of their revenues from SMS. On an average mobile subscribers send 45 SMS each month according to the Trai. That's a whopping 40.5 billion messages a month considering there are 900 million mobile connections.

You don't have to be a rocket scientist to do the math and realise that operators do not want to give up on a service which gives them near 100 per cent profits, not at any rate when subscribers are willing to pay. This is the reason why mobile operators are able to offer SMS at 1-10 paisa to telemarketers and still make profits. This is also why operators are able to offer you schemes wherein you get to send unlimited short messages for an additional charge of Rs 50 a month. While you think that you have landed a great deal, the service provider is laughing all the way to the bank.

Telecom operators have so far been able to get away with this because mobile tariffs are under forbearance, i.e. not regulated. The telecom regulator recently floated a paper seeking to undertake a review of this policy. While operators are up in arms against any regulatory intervention, perhaps it should look into the SMS pricing, which despite competition, has not changed over the last decade.

Why not have a business class in telecom customer care?

Almost every day I hear sob stories from my colleagues, friends, family and readers about how their phones aren't working or how their operator has overcharged them for services they haven't even used.

While the nature of complaints differ, sadly, all of them have one thing in common – “Calling customer care doesn't help. They don't understand the problem.” As someone covering the telecom sector, I have brought some genuine complaints to the notice of various telecom companies. And voila, problems which could not be resolved by customer care for weeks and months get resolved within a matter of hours.

But why is it that the operator is able to resolve customers' problems when a special request is made, while regular complaints remain unnoticed?

I asked a source working in a telecom company how he is able to resolve ‘priority' user issues in a jiffy. He said he flags all ‘priority' complaints as important and urgent which then get dealt with instantly by dedicated teams. This privilege, I am told, is given on request to big politicians, high ranking bureaucrats and a few journalists. But why restrict this to a chosen few, why not deal with all consumers problems with the same promptness and willingness?

The problem is that telecom companies in India work on thin margins and therefore, can allocate only limited resources in a bid to manage costs. There are over 900 million telephone connections in the country but operators get only about Rs 50-100 from nearly 85 per cent of these connections. It's the remaining 15 per cent which really bring in the big bucks. As a result, customer care operations of most companies are struggling to put enough resources together to meet the demands of the huge subscriber base. Airtel, for example, has 180 million mobile subscribers but only 7,500 customer care agents manning call centres across the country.

Therefore, it is no surprise that 16.8 per cent of all complaints registered by the National Consumer Helpline, set up by the Ministry of Consumer Affairs in 2010-11, were related to telecom services. In comparison, complaints related to sectors such as banking, insurance and automobiles were less than 5 per cent of the total. This fiscal has not been any better. The Department of Telecom has already received 41,341 consumer complaints against telecom operators in the seven months to October 31. The actual scale is much larger because the majority of complaints are not registered with any Government agencies.

One way out of this mess is to look at how other services industries such as aviation and hotels deal with their customers. When you book a flight ticket or a hotel room you are given the option to decide what type of service you want. For instance, flight seats are allocated according to class. Those paying higher fares for executive class or business class get the best facilities, in terms of access to lounge areas at airports, special check-in counters, bigger comfortable seats and an unlimited supply of drinks. Those who opt for economy class seats board the flight knowing that there will be lesser leg room. Similarly, when you check into a five-star hotel, you have the option of picking a luxury suite which comes with king size bed, personal Jacuzzi and with the best view or you can settle for an ordinary no frills room.

Telecom operators could take a leaf out of the airline and hotel industry page and should also categorise their consumers depending on usage. A high paying customer, who spends more than Rs 1,000 a month, should be entitled to a higher grade customer service. I am not suggesting that those who pay Rs 50 should be given a shoddy treatment. After all, the customer who stays in an ordinary suite is still given basic services by the hotel. But by offering graded customer care two things will happen. Firstly, it will help operators retain the high paying subscribers. Secondly, acustomer will be empowered to choose for himself the kind of service he wants and hence it will act as an incentive to the low paying subscriber to start using more to upgrade himself to the next level. Technology is already available which can enable telecom companies to set up such a system; it is only a question of when.

The real story behind MNP numbers

Recently, the TRAI shot off a notice to cellular operators including Airtel for failing to implement mobile number portability properly. The action against the operators was initiated because the regulator's investigation revealed that number portability was not taking off due to bottlenecks created by the operators thus blocking users from shifting over to rival players. A look at the reported numbers seems to indicate that the TRAI has got it right. A year since the service was first launched, only 23 million porting requests have been reported. Of these, only about 19 million requests have actually been carried out while the remaining 4 million requests have been rejected by the operator on various grounds, some of which are highly questionable. Considering that there were 881 million wireless subscribers as on October 31, the total reported porting request is just fewer than 3 per cent of the total user base. This seems to be far short of the TRAI's own estimates of 10 per cent in the first year. Hence many have already written off MNP.But numbers that are not in the public domain reveal a different story. Data tracked by MNP operators reveal that nearly 60 per cent of the porting requests made by subscribers never get reported, and hence do not reflect in the system. This is because the moment a subscriber sends in a request for the unique porting code, the operator begins taking steps to retain him by offering freebies, extra talk time and reduced call rates. Once the subscriber agrees, the operator does not forward his request to the MNP registry and therefore this does not get reported. So, in reality, there are 34.5 million more consumers than reported, who sent in their request for porting. This means that if the actual number of subscribers who want to change their telecom operator are accounted for, the total porting request will be about 6.5 per cent of the subscriber base, much closer to the TRAI estimate.

While the TRAI should investigate how to reflect the complete picture in reported numbers, this highlights another important point beyond the statistics. Apart from giving the consumers more choice, one of the other key objectives of introducing MNP was to get operators to be more competitive and offer better services to customers. If 60 per cent of subscribers who thought about shifting to another operator ended up changing their decision because their service provider took proactive steps to retain them, then one could say MNP has actually succeeded.

Caught in the Web

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Twitter suspends my account but gives no reason

I wanted to tweet something today morning and instead I am blogging about how I can't. Thats because Twitter has decided to suspend my account without giving any reason. Now a service provider has the right to withdraw the service at any given time but I think they owe an explanation at least to the user. But Twitter doesn't think so. The only message I got was a warning box on top of my page which informed me about the suspension.

To top it all, the email they sent me, after I sent an application for reinstating the account, asks me to explain if I knew why the account has been suspended!!. No, I did not do anything that violates the rules.

I know I am not the first one to get knocked out. Sometime back twitter accidently suspended a number of accounts due to human error. My grouse is with the secrecy around such an action. Talk about social network being "open".

So if you are trying to find me on Twitter and you can't, it's because Twitter has suspended my account. I am just hoping that its another human error or their computer automatically locked me out of my account. Twitter please give me back my account.

UPDATE:

Twitter has restored my account after two weeks and after I had made a new account. Got a mail from them saying that my account got suspended by mistake along with some spammers.

Weakening Signals

The alarm bells have gone off. Once the poster boy of India's economic reforms, the telecom sector is witnessing disturbing trends. Operator revenues are stagnating, profitability is declining, investments are slowing and costs rising.

Consider this. Vodafone's Profit after Tax margins have declined from 17 per cent in 2007 to just 0.01 per cent in 2011. Bharti Airtel's Return on Capital Employed has decreased from 29 per cent in 2007 to 19 per cent, and Idea Cellular's operating expense as a percentage of revenue has increased from 12 per cent to 31 per cent during the four-year period.

Add to this the fact that operators' average revenue per user has declined from Rs 262 in 2007 to Rs 100, minutes of usage (MoU) per user have fallen from 465 to 369 and net subscriber addition has fallen from 14-15 million a month to just over 8 million, and you have all the signs for a disaster in the near future.

“The slowdown in the sector should be an area of great concern as the growth journey of the sector is only partially complete. More than half of the people in the country have not yet subscribed to mobile services and they mostly reside in rural areas. While large-scale additional investments are the need of the hour, the sector is witnessing a reverse trend,” says Siddarth Vishwanath, Executive Director, PwC India.

According to the consulting firm, the capital expenditure of Bharti Airtel, Idea Cellular and Reliance Communications has declined from Rs 29,600 crore in 2008 to Rs 9,500 crore in 2010.

All of this is giving mobile companies sleepless nights. “The financial trends are very worrying. This is compounded by the regulatory uncertainty over crucial issues like spectrum pricing, licence renewal, and merger and acquisition rules,” says Rajat Mukarji, Chief Corporate Affairs Officer, Idea Cellular

TOO CROWDED FOR COMFORT

It's not too difficult to see what triggered this slowdown. According to the Cellular Operators' Association of India (COAI), the industry body representing GSM operators, the entry of new players in 2008 is one of the factors that put pressure on the industry. “Intense competition, with 10-12 operators in a service area, has led to a free-fall in tariffs. However, this has not been matched by an increase in minutes of usage per connection per month. Thus, negative influence on revenues due to falling tariffs is not being compensated by increase in MoUs,” says Rajan Mathews, Director General, COAI.

The industry association reckons that a lot of the misery has been caused due to the heavy taxes and levies imposed by the Government on the sector. Mobile operators in India pay 19-28 per cent of their annual revenues to the Government in the form of licence fees, spectrum charges and service tax. In addition, the industry has had to bear the cost of implementing Mobile Number Portability — estimated to be around Rs 500 crore, and an equal amount is expected to be invested to satisfy the Government's security concerns. “I see it as a schizophrenic tendency on the part of the Government because, on one hand, they want us to improve tele-density, roll out broadband in rural areas and fulfil social rollout obligation, and on the other, we have to bear heavy costs,” says Mathews. The Government earned Rs 1.36 lakh crore from the telecom sector in 2010, compared to Rs 9,100 crore in 2004. According to PwC, mobile companies on average pay 23.5 per cent of their annual revenues to the Government, even as the most-efficient operator's profit after tax was lower at 20.2 per cent of the annual revenues.

FUNDS ARE DRYING UP

Increasing costs have forced operators to resort to debt to finance network rollouts in rural areas, and paying for 3G/broadband spectrum. This has significantly raised their debt ratios. For instance, the net debt to EBITDA ratios of Idea Cellular and Reliance Communications have increased manifold from 1.3 and 2.6 in 2009 to 2.9 and 5.3 respectively at the end of 2010.

“This high indebtedness is likely to lead to slower expansion of 2G networks in rural areas as well as slower upgrades in urban areas, and delayed rollout of 3G,” says PwC's Vishwanath.

The immediate impact of the slowdown has been on foreign investors, who are cagey these days about putting big bucks into Indian telecom — a sharp contrast from pre-2007 when investors were queuing up. FDI in the telecom sector was $1.7 billion in fiscal 2011, down by 35 per cent compared with $2.6 billion in fiscal 2010. Of late, Indian banks are also going slow on lending to telcos. Gross credit exposure of Indian banking industry to telecom has fallen from Rs 1,00,425 crore in March to Rs 94,319 crore in June this year.

The other major impact has been on consumers, who are now being asked to pay more. Many mobile players including Tata DoCoMo, Bharti Airtel and Vodafone have increased tariffs over the past two months, indicating a reversal in trend. “Continuously declining margins, high 3G and BWA auction prices, constrained spectrum and rural rollout aspirations leave us with little choice but to make some price corrections,” an Airtel spokesperson had said soon after increasing prices for some of its prepaid packages. If industry fundamentals stay poor, further tariff hikes could be on the cards. While this will help operators protect margins to some extent, the party for telecom consumers seems to be over for now.

The biggest impact, however, has been on the new players, whose business case has been adversely affected due to hyper competition. Even three years after acquiring licences, they have only 5 per cent market share and 2 per cent of the overall revenues. Further, they have only around one-third of the ARPUs that the incumbent players have.

ROADMAP FOR GROWTH

But not all is lost and operators are betting on a combination of Government policy impetus and potential market growth to revive their fortunes.

“The silver lining is that there are 500 million more people without a mobile connection, which means there is a lot of scope for growth. Broadband is another avenue of revenue growth. But along with this we need clear policies from the Government to stimulate the sector,” says Mukarji.

Though the Government is working on the New Telecom Policy 2011, the industry feels its real concerns are not being addressed.

To start with, the industry wants cuts in taxes and levies to help lower its costs. Second, it wants a correction in the market structure through a liberal merger and acquisition norm. And, finally, it calls for freeing more spectrum at reasonable prices.

“The Government, on its part, has to decide whether it wants the telecom sector to bounce back to its thriving old glory or whether it wants to continue to milk it," says Mathews

Fight For India's Enterprise Communications

Miles away from his home in Australia, Drew Kelton, the President of Bharti Airtel's Enterprise Business sits in his Gurgaon office and occasionally plucks at his guitar whenever he wants to relax. The high profile executive was roped in by Airtel in July 2010, from Telstra, for only one purpose – to transform Airtel's enterprise business from a connectivity provider to one offering a host of services to corporates in India. So over the past year Airtel has announced a number of partnerships with the likes of Savis and VMware to offer managed IT and cloud services to enhance the value to its corporate clients.

“My objective is to make managed services a key part of our enterprise business. This is being driven by growth dynamics of the industry where, on one hand, corporate customers are demanding a single-window solution and on the other hand, it helps us to increase customer retention. Providing a broader suite of services increases stickiness,” says Kelton.

Like Airtel, other large Indian telecom companies including Tata Communications and Reliance Communications are also engaged in transforming their dumb network pipes to build layers of services on top of them.

“Three years ago we took a decision to move from being a network company to offer all services which are required by corporate. So we have now built an array of offerings including managed services, data centres, data security, telepresence and cloud. There is no option but to make this transformation,” says Srinivasa Addepalli, Senior Vice-President (Corporate Strategy), Tata Communications.

While enterprise customers' growing needs are forcing this change, Indian telcos are speeding up this transformation due to a bigger threat – the one from large global service providers such as BT, AT&T and Verizon.

These big boys of enterprise communication had started making inroads into the Indian market three years ago. (See http://www.thehindubusinessline.com/todays-paper/article1112390.ece.) Their entry was driven by the growing number of multinational companies setting up shop in India. But in addition to foreign MNCs, slowly these global players have been able to get contracts from some large Indian multinational companies, until now considered assured business for the Indian telcos.

Check out these facts. Paris-headquartered Orange Business Services has more than 600 customers in India including a large number of local companies and State Governments. Cable & Wireless has 10 of the top 15 BPOs in India as its clients. AT&T's India business is growing at a CAGR of 30 per cent since it got a licence four years ago even as the industry is growing at only about 8 per cent. And BT boasts of having the likes of Wipro and TechM as its customers.

Bala Mahadevan, CEO - India, Orange Business Services, says, “Our customer base in India has seen a significant increase in two areas. First, on the network connectivity side, we are witnessing the global expansion of many Indian companies, and hence the international connectivity needs are expanding. Compared to a traditional international customer base which has offices in India, the trend is now two-way with Indian companies expanding.” The French company is aiming for a four-fold revenue growth in the Indian market by 2015.

Cable & Wireless has 150 customers in India with some major wins last year. “In 2010-11 in India, we have closed seven large enterprise deals, secured a new contract with one of the top three Indian banks, signed up with two of the top BPOs in the country – including Mphasis – and achieved a strong performance with some our existing global accounts,” says Shali Thilakan, Managing Director, India , Cable & Wireless Worldwide.

These global telecom firms are driving a multi-pronged strategy with the services piece at the core. As it is they have network infrastructure that is spread across the globe to cover more than 100-150 countries. On top of that they have built a battery of services such as MPLS, Ethernet, unified communications, CRM, virtual data centres, virtual private networks, and hosted IP telephony. In addition they are earmarking more resources to ramp up their presence in the region.

BT (formerly British Telecom), for example, recently embarked on a regional expansion plan as 80 per cent of its largest customers by company turnover are expanding in Asia, with the majority expanding aggressively into India. “Our customer-led investment programme is designed to support the growth of large enterprises in this region, ensuring we are able to provide businesses with a broad suite of propositions and professional services that are the same wherever they operate,” says Sudhir Narang, Managing Director, BT India. BT was among the first global players to announce the intent to target Indian corporates. The company had said it would achieve a target of $250 million in this market. Though BT does not want to say whether it has been met, market analysts said the British firm's revenues have gone much beyond this number.

Not to be left behind, US telecom major AT&T is also expanding into more Indian cities. “We are enhancing the nodes in Hyderabad, Mumbai and Bangalore. We are continuing development of managed hosting and infrastructure services capabilities, enhancing AT&T Telepresence services with new Telepresence rooms in AT&T's offices in Delhi, Bangalore and Hinjewadi, Pune and capitalising on network expansion and subsea cable investments to improve capacity and diversity. A case in point is the recent Europe India Gateway cable implementation,” says Gopi Gopinath, Chairman and CEO, AT&T Global Network Services India Pvt Ltd.

While Indian telcos are relatively new to the services game, to protect their turf they are leveraging their strong domestic network to cross-bundle other telecom services. “We are not just an enterprise service provider, we have data services, mobile services and fixed telephone. We offer a package deal. If a big MNC needs all these services in India, where will it go? To Airtel or to a global service provider?” poses Airtel's Kelton. Airtel boasts of MNC clients including Intel, Thomson Reuters and Goldman Sachs.

Indian telcos are also betting on their ability to design low-cost business models to deliver services targeted at new segments such as the small and medium enterprises. Tata Communications, for example, was the first to start the concept of public Cisco Telepresence rooms. Compared to millions of dollars required to set up a private Telepresence room, these public facilities are available on an hourly pay-per-use basis, and located in central business centres. This approach increases the market pie for the Indian telcos because the global players are in no position to go after the SMB market or the mobile enterprise segment.

To take the battle further into the foreign operator's camp, the Indian telcos have opened up another front by competing in the international emerging markets. Tata Communications, which had bought undersea cable systems such as Tyco Global a few years ago, is leading the charge. “We cannot compete with the global players in markets like the US and Europe as it is their home turf but we are there in neutral countries such as South Africa and South-East Asia. We cannot compete with them on global connectivity but we are strong in services like multi-location telepresence and data centre solutions,” says Addepalli. Both Airtel and Tata Communications are moving into Africa and West Asia in a big way.

But the global players are not too concerned yet as Indian telcos still have a lot of catching up to do. “Many carriers have partnerships with solutions companies to offer one-stop managed services solutions. However, AT&T's advantage is that we can do this just about anywhere in the world and provide consistency of service wherever a multinational company operates,” says Gopinath.

Back home, Indian telcos are looking to innovate in value addition. For example, Airtel, which has more than 160 million mobile customers, is exploring the option to link enterprise customers to the retail consumers to take services to a whole new level. The operator is in talks with one of its MNC enterprise customers – a global healthcare technology firm – to leverage the new b2b2c model. While this may not add anything financially to Airtel, it is hoping that giving access to its retail customers could be of value to its enterprise customers – something the global players will not be able to emulate. If this strategy succeeds Kelton may be able to play his guitar more frequently.