RCom to overhaul pricing model; VAS at Re1 a day2 min read . Updated: 18 Jun 2009, 12:12 AM IST
RCom to overhaul pricing model; VAS at Re1 a day
Mumbai: The tiny sachet that once helped shampoo makers overcome a price-sensitive market would take on a new avatar that’s likely to change how cellphone companies charge their subscribers.
Reliance Communications Ltd (RCom), the country’s second largest mobile phone services operator, is overhauling its pricing model to offer value-added services (VAS) such as caller tunes, news alerts and Internet surfing for as low as Re1 a day, rather than for a monthly subscription.
“We are rolling out this sachet pricing this month. We have already tested the sachet pricing prospects with gaming," said Krishna Durbha, business and marketing head, VAS.
The Anil Ambani firm, Durbha said, expects 15-20% of its revenue to come from VAS and data services over the next three year, but did not divulge current contributions.
Indian cellphone companies typically earn 9-12% of their revenues from VAS and data services, according to a telecom analyst with a domestic brokerage, who declined being named. In countries such as Japan and Korea, VAS contributes as much as 30% to a cellphone operator’s total revenues.
Sachet marketing started transforming sales strategies in India some three decades ago. In the 1980s, Chennai-based Cavinkare Pvt. Ltd launched its Chik shampoo brand in sachets for 50 paise and Re1, making it easier for consumers to buy these branded products.
The strategy paid off and forced other companies in the sector to follow suit, but sachet marketing has largely been restricted to consumer goods.
Among cellphone operators, Vodafone Essar Ltd was the first to sell ultra low-cost products when it launched micro top-up cards costing Rs10 each for its prepaid customers.
RCom now plans to roll out a series of initiatives including live streaming of cricket matches and Formula One car races as well on mobile phones, Durbha said. Subscribers can opt for sachet or consolidated payments for these services.
A recent survey by consultancy firm KPMG in 19 countries shows that Indian consumers are increasingly willing to experiment with new mobile services.
“Telecom players recognize that increase in VAS revenues will be an important aspect of future growth and profitability," said Rajesh Jain, head of information, communication and entertainment at KPMG in India. “Players in the value chain are innovating and focusing on increasing the market size for their products and services."
The KPMG survey showed that 86% of Indian respondents were likely to watch live TV on mobile phones in the next 12 months while mobile commerce applications continue to face challenges in gaining wide acceptance.
“In India, caller tunes are the most popular item in VAS. Music and its derivatives are the clear leader," Durbha said.
He added that Arpu, short for average revenue per user, a key metric in the cellphone industry, from VAS may not grow immediately due to the reduced prices, but would rise significantly over the long term since the entry price is low.
The biggest beneficiaries of the sachet pricing plan would be prepaid subscribers, who account for nearly 85% of RCom’s wireless subscriber base, he said.
In an April report from ICICI Securities Ltd, analysts Vikash Mantri and Suchitra W.L. said they were sceptical about the success of mobile VAS in the short-term in spite of several drivers because of a scarcity of spectrum in congested areas, especially in large cities where most of the demand for VAS is expected to come from.
The analysts added that affordability of devices and services in semi-urban and rural markets remains questionable.