Price conscious mobile customers drive biz model innovation

Mobile operators in emerging markets of Asia are challenged by low ARPU (average revenue per user) due to their large prepaid base. To increase their revenue, these players are pushed to become more innovative when it comes to pricing, say analysts.

In Asia-Pacific, major low ARPU (average revenue per user) include China, the Philippines, India and Indonesia where there is a large prepaid base and cheap tariffs, said Nicole McCormick, senior analyst of telco strategy at Ovum.

Shiv Putcha, principal analyst for emerging markets at Ovum shared that the ARPU for India in 2012 is US$1.6 while the ARPU is US$48.5 for the United States.

Jessica Kwee, research analyst at Canalys, added that the mobile market in India and Indonesia is "very saturated" with many competing operators."India, for example, has at least a dozen operators while Indonesia has around nine to 10 operators," she said.

Kwee added that the majority of the populations in these markets have relatively low income so the operators need to compete competed stiffly on price by undercutting each other on calling rates, SMS and even on BlackBerry Internet Service rates.

Nipun Jaiswal, industry analyst for Asia-Pacific ICT Practice at Frost & Sullivan said prepaid subscription contribute to over 90 percent of the total user base. While voice and SMS are the main revenue drivers but the tariffs are low due to contribution, he said.

Jaiswal added that these markets are now in a transition phase where consumer behavior is changing and apps such as Skype and Whatsapp are increasingly replacing voice and SMS. "These seemingly cheaper methods of communication look more appealing to the large price conscious prepaid customer base," he added.

Innovative models
McCormick noted that mobile operators are looking at innovative ways to charge their users to increase their ARPU. "In fact, a lot of pricing innovation is being driven by operators from emerging markets in Asia," she said.

For example, operators in Indonesia have launched services with different Quality of Service standards and offer speed booster options for customers, said the senior analyst.

"Philippine operators are experts on bundling social messaging for prepaid users. For instance, Globe offers Facebook access [for a daily rate]," she added.

Kwee added operators are also trying to segment mobile rates based on time by offering cheaper calls or data rates during off peak hours. This strategy helps to reduce congestion during peak hours and at the same time try to boost usage during non-peak hours, she said.

Operators in these market have also come up with a prepaid system for Internet access, which Kwee noted was driven by the popularity of Research in Motion's BlackBerry in Indonesia. The operators provide the option for the consumers to subscribe for the services either daily, weekly or monthly, depending on forecasted usage, usually advertised as unlimited access, she said.

The operators have also extended the prepaid system to provide "sachet" services. "For example, the consumers can just subscribe to BlackBerry Messenger for a cheaper rate. While other packages allow access to BlackBerry Messenger as well as Facebook and other social networking sites, she added.

Jaiswal shared that Indian operator Aircel has a service which allows subscribers to update their Facebook status through voice calls. Users can dial a short code and record the message which will be posted as a status update, he said.

Preference for micro payments
The Canalys analyst added that operators in these price conscious markets are leveraging the consumers’ tendencies to prefer micro payments as opposed to large, one-off payments.

Thus she believes more can be done to expand micro payment services for these operators. "Currently most micro payments are focused on IM (instant-messaging) and social network but there is a possibility to extend this business model to other services, like music and video streaming" by charging a premium for temporary speed boost, she added,

Kwee noted that there is potential for providing a centralized providing centralized data storage, especially for contact information storage and backup, as many users in emerging markets switching SIM frequently which makes it difficult to manage their contact list.

McCormick believes that the ultimate way for operators to increase their ARPU is by increasing tariffs. "For example, there have been tariff increases made by the Big Three operators in Indonesia--Telkomsel, Indosat and XL--since the second quarter of 2011 in the wake of an 18-month damaging tariff price war," she said..

For Jaiswal, partnerships with low-end smartphone makers is a good choice for operators. "One such example is China Unicom's partnership with Xiaomi and Huawei. This would enable operators to subsidize handsets and offer them along with smart bundled packages of voice, text and mobile internet," he said.