Low denomination recharge cards pre-empt competition from Reliance's prepaid

In India the launch of one of the lowest denomination recharge cards in the world valued at INR 50 (USD 1.10 excluding 8% service tax) has prompted excitement. (Smart offers a lower value recharge service in the Philippines for PHP 30 (USD 0.53) but via electronic topup). Both Bharti and Hutchison are offering these INR 50 cards, which were launched in a pre-emptive move ahead of the launch of Reliance's CDMA prepaid service on 11 February 2004.

In India 80% of the GSM subscriber base is prepaid and there are now many different ways a subscriber can recharge his or her account. Hutchison in Kolkata (Calcutta), for example, offers subscribers five different ways of recharging: they can recharge their prepaid account by buying a prepaid scratchcard and then phoning the operator on their mobile phone or a fixed line handset, by sending an SMS to the operator or by recharging on the internet. They can also undertake voucherless recharging by using ATM machines to recharge (using UTI Bank ATM machines).

In January 2004 Bharti announced that subscribers could now recharge their cards using new lower denomination INR 50, INR 100 and INR 200 cards (denomination levels exclude an 8% service tax). The validity of the INR 50 card is only three days, the INR 100 card seven days and the INR 200 card fourteen days. Bharti subscribers can also recharge their cards while roaming on any of Bharti's 15 networks.

Hutchison in Kolkata (Calcutta) also introduced an INR 50 prepaid card (INR 54 including tax). Hutchison is also offering an INR 100 denomination add-on coupon (INR 108 including service tax) for Kolkata subscribers. If, for example, a subscriber recharges with a INR 100 denomination add-on coupon on the 21st day after recharging with his or her last regular recharge coupon (for example, an INR 300 denomination coupon with a validity of 30 days), the validity will be as per the regular recharge coupon (INR 300 denomination coupon in this example). The validity will expire after nine days (ie 30 minus 21) of recharging with the INR 100 denomination coupon.

Across the range of recharge denominations the proportion of talk time as part of the overall denomination is much lower in the smaller denomination cards. Therefore, if a subscriber can afford to do so, he or she is actively encouraged to take a larger denomination card.

Recharge denominations, Hutchison (Kolkata)

In January 2004 Hutchison in Gujarat launched an 'eTopUp' voucherless prepaid refill service in which users, by visiting select Hutch retailers in Ahmedabad, could get an instant recharge of any amount they chose between INR 324 and INR 5,000. This service will soon be rolled out to other areas of Gujarat. Bharti also offers a service in which the subscriber can choose the size of the denomination card.

Another interesting development has been the use of incentives to encourage subscribers to recharge. Hutchison in Andhra Pradesh is offering gifts with each recharge.

Hutchison (Andhra Pradesh) - gifts with recharges

Effect on ARPU

The introduction of these lower denomination cards could boost ARPU because it will encourage subscribers who have a low disposable income to spend some of this income on phone calls as opposed to other things such as lottery cards. It means that a subscriber who only has an INR 70 disposable income at any one time can use this to recharge his or her card whereas before he or she would have had to save up for the lowest denomination card, which was normally INR 300. With these low denomination cards having only been introduced in January 2004, it is too early to say if they are boosting ARPU levels. ARPU will only be boosted assuming the validity period of these low denomination cards remains short. A much longer validity period for these low denomination cards could have the opposite effect on ARPU by attracting low-end customers who would not otherwise have subscribed to cellular services to do so and thus reducing ARPU levels.

Reliance and prepaid

Reliance Infocomm launched prepaid services on 11 February 2004. Reliance is launching a tariff scheme that bundles free prepaid vouchers with a handset rather than offering very low denomination prepaid cards. Reliance's tariff scheme is focused on attracting new subscribers. (Any subscribers churning to Reliance Infocomm from the GSM operators would have to replace their handsets.) The low prepaid denomination cards offered by Bharti and Hutchison will attract some new subscribers but, unlike Reliance's offer, are more likely to encourage churn from other GSM operators.

Reliance is launching its RIM (Reliance India Mobile) prepaid scheme in which the subscriber will pay INR 3,500 (USD 77) for a Motorola C131 handset and in return will get a free RIM prepaid connection and ten recharge vouchers worth INR 3,240 in total valid for six months with an additional six-month grace period. During this grace period the subscriber will be able to receive incoming calls and SMS without recharging the account. The RIM promotional scheme is also available with other Reliance handsets. A subscriber can buy an LG RD2030 or Nokia 2280 handset for INR 6,500 (USD 143) with twenty prepaid vouchers worth a total of INR 6,480. Each INR 324 voucher expires 30 days after recharging. Any unused balance can be carried forward by buying a recharge voucher and recharging it within 30 days of the expiry of the validity period. RIM prepaid users will also be able to roam at no extra charge.

Reliance is not the only operator to bundle free calls with prepaid handsets but the net cost of its package to a subscriber is much lower since the value of free calls against the overall upfront payment made by the subscriber is greater. Bharti, for example, offers prepaid handsets bundled with free calls. In January 2004 Bharti announced that it would offer the Motorola C201 to prepaid customers for INR 3,299 (USD 72.8) including INR 1,800 free airtime and also the Samsung SGH-R220 for INR 3,999 (USD 88.2) including INR 2,000 free airtime. Both prices will vary marginally according to the taxes in each state.

RIM prepaid handsets are being distributed to 15,000 retail outlets across India and subscribers can buy recharge vouchers from over 70,000 retail outlets across India. All local calls, intra-circle calls and inter-circle calls of less than 50km distance to another mobile phone have a flat rate of INR 2.49 (USD 0.05) per minute. This compares with other operators such as Bharti in Maharashtra in which local mobile-to-mobile calls are also INR 2.49 a minute. International calls from Reliance Infocomm subscribers are billed separately and cannot be used as part of the inclusive talk time provided by the free vouchers.

Conclusion

The launch of Reliance's prepaid service with its large amount of free minutes combined with the GSM operators' offer of prepaid cards with a very low denomination, have made prepaid even more appealing to Indian consumers. With over 80% of India's GSM cellular population already using prepaid, such measures will help the growth of prepaid and the expansion of India's teledensity, which is one of the Indian government's objectives.