Local operator Grameen Phone will seek new customers from heretofore "unprofitable" markets in rural areas
Bangladesh's Grameen Phone uses innovative prepaid technology to tap into the allegedly "unprofitable" rural segment and boost its customer acquisition numbers 55%
Here is a chicken and egg question for emerging markets - what comes first: economic growth or a sound telecom infrastructure? Though infrastructures of many kinds are required to boost a country's economic growth, telecom does play a huge role in nurturing that growth. In a world where social conscience is so frequently talked about, how can technology fuel the overall growth of an economy, and correspondingly impact the lives and livelihoods of the poorest members of society? Facilitating channels of communication is a major enabler in bringing together technological and economic growth.
Since the launch of cellular services in India in 1995, for example, the subscriber base has grown phenomenally. Over 100 million mobile subscribers, and an ever-evolving array of services have redefined communications for many Indians. But that huge subscriber base represents fewer than 10% of the population. What of the other 90% of the Indian market, or indeed the billions of rural villagers not yet served by mobile?
The solution is not simple. Poor income levels, limited purchasing power, and inadequate telecom infrastructure are key bottlenecks. As a result, cellular services for this segment are perceived to be expensive - and consequently unprofitable. With operators frequently focused on raising ARPU, many assume that only with government intervention will operators serve such rural markets. But does this necessarily need to be the case?
There are examples we can take from the developing world where mobile service providers have seen the opportunity afforded by serving the many, rather than the few. One such example is Bangladeshi operator Grameen Phone, whose experience provides insight into how to improve market penetration by profitably targeting the untapped low-income market segments.
When dealing with rural areas, affordability is the single biggest barrier to mobile communications usage. Developing affordable product lines is the key to reducing cash barriers to entry and expanding the mobile market. This is simply not a matter of shaving 10% off prices. Improvements in price-performance ratio need to be tailored to the distinct consumption profile of people at the bottom of the pyramid (BOP). A large BOP segment of rural markets comprises daily wage earners, who spend what they earn on a day to day basis. With a meager average disposable income, this segment cannot afford large-ticket items, such as a mobile phone, or large denomination prepaid top-up vouchers.
Grameen Phone showed that the ability to address consumer demand for affordable mobile tariff plans is closely linked to an operator's cost per transaction. A high per unit cost of refill weakens the flexibility to offer a wide range of denominations at compelling price points that will successfully attract the BOP segment. Conventional retailing models that rely on the supply of physical vouchers have high inbuilt costs, including printing, transport, insurance, and inventory.
These retailing models do not support tariff structures that lower the entry threshold. In most rural economies, the cost per transaction is further inflated by a lack of adequate physical infrastructure in many regions, such as roads, transport modes, storage facilities, and an established retail ecosystem. This accentuates the need for a completely new business model to profitability extend services to the under penetrated segment of the market.
Grameen Phone deployed a prepaid mobile solution, PreTUPS, from Bharti Telesoft, that broke the conventional prepaid service delivery chain and replaced scratch cards, allowing operators to vend prepaid talk time in electronic form over existing distribution channels.
With PreTUPS, Grameen Phone was able to profitably grow the BOP segment. PreTUPS replaced scratch cards and equipped intermediaries in the prepaid value-chain with a multilingual SIM-based menu to perform role-based functions to distribute airtime.
Retailers used their phone menu to replenish a subscriber's account over the air while distributors were able to check the retailer balance, withdrawal limits and invoices from the handset. In addition, the solution provided the facility to transfer talk time from prepaid-to-prepaid and prepaid-to-postpaid subscribers over SMS. The system simply deducts the requested amount from the sender's account, and after deducting processing charges, adds the amount to the receiver's prepaid account or pays the postpaid bill. PreTUPS also provided Grameen Phone with an end-to-end platform to simplify management and administration of various aspects of prepaid service distribution.
For Grameen Phone's subscribers, PreTUPS translated into an affordable way to use mobile phone services. Grameen Phone's subscribers can now budget mobile usage into their daily expenses, equipping them with one of the tools of modern business.
As a result, Grameen Phone experienced a significant improvement in market penetration, with 55% growth in customer acquisition over a 12-month period. According to Naimul Huq, product and market development manager of Grameen Phone, one of the keys to achieving such success was the functional robustness of the technology in terms of delivering cost efficient solutions to Grameen Phone's target markets. Rather than focus on ARPU, Grameen Phone has focused on extending service and profits. Just because a subscriber has low usage, it doesn't make that subscriber unprofitable. This is a lesson that should be taken to heart by operators throughout the developing world.
With the introduction of such innovative services, operators can adopt path-breaking micro selling methods that cater to the spending patterns of BOP segments. Post PreTUPS, the BOP segment in Bangladesh had the option to top-up accounts in smaller, affordable denominations, as low as a few takas ($1 = 68 takes).
Further, such services go a long way in reducing the cost of servicing the subscriber by eliminating costs incurred for items such as printing, packaging, transportation, warehousing, insurance, inventory and sales tracking, says Sanjiv Mital, CEO of Bharti Telesoft.
"Per unit cost of printing physical vouchers is approximately $0.05. At 62% penetration and five recharges per month per subscriber, the average annual saving on printing vouchers totals $9 million a year," says Mital. "What is more, SMS based recharge helps operators save on IVR expenses too.", operators can improve accessibility and availability of prepaid services to the economic benefit of individual subscribers, and in time, the overall economy.
The constant availability of top-up and the opportunity for micro-prepaid options ensure the sustainability of the operator's monthly ARPU. This is clearly reflected in the case of Grameen Phone, where with 250% growth in top-up transactions, the ARPU for prepaid users was $6.30. More importantly, Grameen Phone has achieved service extension to the under-served segment of the population profitably, building a robust business model in the process.