A shrt 'n swt strategy

SMS has become the new buzzword for cellular operators as they look to enhance revenue and subscriber base.

If the cellular industry's strategic response to the newly-evolved Short Messaging Service (SMS) market is anything to go by, it seems to have found a growth engine for its sagging revenue model.

Low voice communication revenues and high capex requirements in the cellular sector have forced the entire industry jump onto the SMS bandwagon. But unlike its voice market, this market-building exercise is all about "educating the customer", not price wars.

Last month, Delhi-based Essar Cellphones unleashed a 45-day-long ad campaign, spending a whopping Rs 2 crore. The "r u smsing" target group is the youth, so the company's adopted the fun platform: the lingo is whacky and full of one-liners like "c u 2nite" and "gd 4 u".

When cellular service providers first hit India in 1996, they fell over each other to offer customers price-offs and incentives to grow this fledgling market. This "commodity" approach to the services business may have seen the user base soar (it practically wiped out the paging business too), but all these gains came at the cost of profitability.

India today has 4.4 million cellular subscribers, up from 1 million in 1998. But here's the anomaly: realisation per subscriber has actually dropped average revenue per user (ARPU), according to analysts, has gone down from Rs 1,200 per month in 1999 to Rs 900 in 2001.

In the major cities, ARPU could be as low as Rs 700 (this is because nearly 55 to 60 per cent of the new entrant subscribers opt for pre-paid or "cash" cards).
Now, with price-offs pretty much maximised India offers one of the cheapest cellphone rates in the world service providers are calling on a "product extension" of sorts to bring in the revenues and profits. SMS showed potential right from the time it was launched two years ago.

Today, an estimated 70 lakh SMS messages are exchanged per day in India, up from 30 lakh a day early this year. At an average charge of Rs 1 to 1.50 per message (for pre-paid card holders, it stands at Rs 2 per message), national revenues from SMS could range between Rs 70 lakh to Rs 105 lakh a day, which, in turn, works out to Rs 20 to 30 crore a month. Considering that cellular use is still in its infancy, this could become substantial in the coming years.

The SMS segment is where the industry's first real marketing initiatives are being taken. Tariffs here are standardised across all service operators. There's no scope for another price war.

So companies are looking at extensive consumer education among their subscribers to get them hooked on. This, they believe, will pull up their sagging revenues and have a positive rub-off on their mother brands as well.

"It is our responsibility to expand the category and this will add to our brand equity," says Sudershan Banerjee, CEO, Essar Cellphone. While declining tariffs is broadening the subscriber base, it is the value-added services like SMS which players want to tap to improve profitability.

"The beauty of SMS is the fun element attached to it and the price which is far lower than voice communication," says Banerjee. "It is non-invasive, instant and direct."
Text messaging becomes much more attractive when there's a need to communicate with someone internationally. This can be done at Rs 1.50 per message compared to a voice call where you would have to pay ISD charges.

"We are nowhere near saturation, so voice communication will continue, but value added service will strengthen our revenue stream," agrees Sarvjit S Dhillon, chief executive officer, AirTel.

Earlier this year, AirTel launched "SMS buddies" or what the company calls "viral marketing" for its service subscribers. According to company sources, since only 25 per cent of its subscribers actually use SMS at present, AirTel wants to expand its market.

Its viral marketing strategy entails using existing AirTel-subscribers to popularise the messaging service among other fellow subscribers who are not familiar with it.
At Rs 1.50 per minute, call tariffs in India are one of the lowest in the world. According to 1999 figures of International Telecom Union (ITU), India had the second-lowest tariff ($ 14.3 per 100 minutes) after Indonesia ($ 9.74) as against $ 41 in the UK and $ 25 in China for 100 minutes basket.

Tariffs have further fallen since then to $ 3.3 per 100 minutes (or Rs 1.5 per minute). Yet it isn't cheap enough to make people quickly shift from fixed line (Re 1 for a three-minute call) to a cellphone which involves the cost of a handset, security deposit and higher rentals (Rs 375 as against Rs 150 a month for fixed line telephones).

Low voice communication usage has meant lower usage per subscriber which is growing at 15 to 20 per cent overall.

According to analysts, SMS is the only value added service which has shown consistent growth. Others like mobile internet, mobile information and news, astrology among others haven't made much headway.

All this while ARPU have been stagnant or declining. According to Girish Rangan, CEO and executive director, BPL Mobile, "In markets like Delhi which have high price points for airtime, ARPU is likely to drop over a period of time." To counter the drop in revenue, operators will have to look at non-voice services.

AirTel according to insiders is currently generating almost 5 to 6 per cent of its revenues from value added services (including the roaming facility) in Delhi alone and SMS (text messaging) forms a substantial part of that.

Similarly, the Modis-promoted Spice Communication, operating cellular services in Karnataka, Punjab and Kolkata expects 5 to 10 per cent of its cellular business to come from SMS.

"To make SMS more attractive, companies are taking it beyond just being a value-added service by offering various information services ranging from billing information to horoscopes, news, flight information and banking services," said Dilip Modi, chief executive officer, Spice Telecom, in an interview to Business Standard earlier this year.

The message traffic is growing at 10 to 15 per cent every month. Essar, which gets 5 to 6 per cent of its revenues from value-added services (including SMS) claims that it recorded a growth of almost 50 per cent in its text message service during the last two months alone.

According to a Pricewaterhouse Coopers report, non-voice based revenues for cellular phone operators could touch a mindboggling 45 per cent of the total revenues by 2005! And SMS text messaging will make a large fraction of this, believe most players.
Even players in the regional circles are getting their acts smartened up. For instance, Escotel mobile, which operates mobile services in Kerala, Uttar Pradesh (West) and Haryana, started SMS services in August last year. Today it generates over 1.5 lakh messages per day from its subscribers base of 3 lakh in the three circles.

AirTel, the cellular service division of the Bharti Group, generates 6 lakh SMS messages from the Delhi circle alone, while Spice Communications has crossed 3 lakh SMS messages in a day from its three circles and Essar cellphone recorded 9.6 lakh SMSs on New Years day alone.

Says Rajiv Burman, chief officer for customer retention and acquisition, Escotel, "It's a terrific application which has potential to replace other modes of communication like fax, email and paging." Escotel, which launched its SMS as a free service in August last year went pay in April this year.

The company is charging Rs 1.50 per message sent from its pre-paid customers while other subscribers have to pay a membership fee of Rs 25 a month and 50 paise per message that they send. The company already claims that 2.5 to 3 per cent of its monthly revenues come from SMS in the five months it went paid.

Encouraged by the initial results, Escotel has gone a step ahead and branded its SMS services, accompanied by aggressive advertising and ground promotions. In Kerala Escotel calls it Beep It while in the Hindi speaking belt of Haryana and Uttar Pradesh it is named Turant Taar.

"SMS is too techie a term for a layperson to get comfortable with while the service itself is very useful, hence to make fairly comprehensible we resorted to the branding exercise," explains Burman.

In the Hindi belt of West UP and Haryana where language was a barrier, Escotel resorted to a campaign to popularise Hindi messages in the English script. Escotel claims that its subscribers send out 1.5 lakh messages in three circles each day. That's 45 lakh messages a month and works out to about 12 to13 messages per subscriber a month.

Rangan of BPL Mobile says that the new offerings in the range of services like miHearmail are based on the premise that they are current, exciting and personalised.

The studies by BPL Mobile early this year, revealed that existing cellular phone users were not keen to buy additional handsets to access the Internet and hence SMS presented the ideal solution. Thus even consumers with legacy handsets could get value additions through SMS.

Subscribers have shown a keen interest in non voice services for most players. According to BPL 60 per cent of BPL Mobile's subscribers in Mumbai have subscribed to non-voice related services. Their percentage was in single digit barely a year ago.
Today, the visual message is as powerful and popular as voice, agree most and this is what propels growth in the SMS market. Marketers are capitalising on this through attractive pricing and novel promotions.

With more content, graphics and multimedia, bigger and better terminal displays, enhancements to security and appropriate privacy, use of SMS is expected to accelerate to even greater levels.

Source: Business Standard, The strategist, 25th September, 2001