The high cost of cell phone services in the US

The Online Wall Street Journal (India Edition) carries an article today (Sept 26, 2012) saying that cell phones are eating away the (US) family budget! Visit

http://online.wsj.com/article/SB10000872396390444083304578018731890309450.html

This article quotes Labour Dept statistics and says that the average household’s annual expenditure on telephone services rose to $1226 in 2011. It carries a small graph showing that expenditures went down during 2007-2011 on vehicle purchases, apparel & services, entertainment and food away from home, while expenditure on telephone services went up over 10% during this period. It discusses the role of smart phones in all this.

I wish to juxtapose this with other information in my previous blog posting:

http://obvioustruths.blogspot.in/2012/09/the-reality-of-mobile-value-added.html

In that posting, I had argued that despite big noises being made over the media, the average Indian cell-phone user spends less than 50 US cents per month on Mobile Value Added Services. Of this, mobile apps and games accounted for less than 10 US cents. The bulk of the 50 cents went into such things as ringtones and SMS-based applications.  

My blog posting had argued that we should not believe that India has suddenly become a nation of Internet users because everyone carries a cell phone.  Important applications such as education and timely information dissemination will need to use services such as SMS for years to come, to cover the population satisfactorily.

Mobile Internet does cost money, even in the US – to the extent that the Wall Street Journal links increase in telecom expenditure to reduced expenditure on food away from home. I only ask that society should give adequate importance to economically productive uses of cell phone services, at least in low-income countries. Smart phones are fun, but for many of us, they have to do their share of work!

Srinivasan Ramani 

The Reality of Mobile Value Added Services in India

Let me show the white flag first! I am techie at heart and I do believe that the mobile Internet has a great future in India. However, I believe that the future should not become the enemy of the present. We have to accept reality and cope with it in suitable ways. Let me come to the point of this article.

Mary Meeker of Kleiner Perkins Caufield Byers made a presentation in May this year. Visit http://www.scribd.com/doc/95259089/KPCB-Internet-Trends-2012

Among the statistics she has presented are the following:

1. India has the third largest number of Internet users (121 Mln) in the world. The number increased during 2008-2011 by 69 Mln to reach the figure of 121 Mln. Compare this growth with the 15 Mln in the USA!
2. India has 39 Mln 3G subscribers, growing at the rate of 841% year on year as against the 115% of China and the 31% of the US.
3. The percentage of Internet traffic carried by cell phones in India has already overtaken the Internet traffic carried by desktops in the country by April 2012.

Some of my friends abroad got quite excited by all this and sent me emails celebrating India’s victory!

I was aware of other statistics which presented a different picture. Visit
http://www.ccaoi.in/UI/links/fwresearch/Mobile%20Conceltation%20paper.pdf

Consultation Paper No 5/2011 put out by the Telecom Regulatory Authority of India:

Mobile Value Added Services (MVAS), 21st July, 2011. The key points I take from this paper are:

1. The average revenue per user (ARPU) per month in March 2011 was Rs 100 in the case of GSM users and Rs 66 in the case of CDMA users. This covered revenue from voice services as well as other services.
2. Non-voice revenues were 11% of all mobile revenues, that is Rs 11/month. 60% of this came from SMS revenues, that is, say, Rs 7. Internet related services earned 9% of all MVAS revenues, which is about Rs 1/month per subscriber.
3. Major uses of the SMS services were:
4. Requests for ringtone downloads, seeking information like news, cricket scores, astrological predictions, subscribing to jokes and accessing other such services

You might think that a lot would have changed since May 2011. Another source
http://articles.economictimes.indiatimes.com/2012-07-04/news/32537173_1_mobile-vas-market-mvas-arpu
quoting a study by IAMAI-IMRB study, gives some updates. My take from this Economic Times report is:

1. The number of mobile Internet users in India in March 2012 was 48 Mln.
2. The average revenue was Rs 96 per GSM user and Rs 73 per CDMA user.
3. Average user spend on MVAS was 27 per cent of the ARPU, estimated to be roughly Rs 24/month.
4. Of the Rs 24 per month, 27% went into ringtones, 17% into SMS based applications; mobile apps took 10% while games took 8%. So, mobile apps took roughly Rs 2 to 3 per month.
5. The report predicted that ARPU will increase by 5-8% over the coming years.

So, here is the reality: The average Indian user did not spend even 10 U.S. cents per month on mobile apps and games! What does all this mean to us? I believe:

We should not jump to the conclusion that mobile Internet is suddenly going to make a big difference to people in rural areas, who constitute two-thirds of cell phone users.

We should not under-estimate the value of providing SMS based services to the majority of users. They stay away from mobile Internet because they find it difficult to download and install apps, and to use browsers. They are afraid of the cost. Being told that the cost is 10 paise per 10 KB of data transfer does not mean anything to them. To me it translates into Rs 10,000 per Gigabyte! Being told that they would have to pay Rs 98 per month for a 1 GB package (or something like that) is itself frightening to them. That is without their really reading the small print. Anything in excess of 1 GB is usually charged at 10 paise per 10 KB again! It appears that this is a totally counter-productive strategy – charging novice users making a beginning with web-content at hundred times what is obviously a sustainable rate. It is equally counter-productive to threaten novice users with the risk of huge bills if they accidentally end up using more than what is their quota.

What about the cost of SMS? There are student packages that offer them a quota of a hundred outgoing SMSs per day for fifty or sixty rupees a month. That indicates that the real cost of an SMS to the service provider is less than two paise!

These issues have been particularly important to me, as one working in technology for education. Is there any chance that low cost cell-phones in small towns and rural areas could promote school-level learning in some way? I believe that this is possible. An associated post in my other blog http://newstudentresearch.blogspot.in/2012/09/apps-that-make-low-end-cell-phones.html briefly describes one of my efforts in this direction. 

If you are in India, you can try out this simple service that enables to test their knowledge of English comprehension using only SMS messages. Students can voluntarily take a monthly test without any fear of failure from anywhere, at any time. I believe that such voluntary tests can sensitise them to the challenge they are facing. Teachers, family and friends can encourage them to read books beyond textbooks and improve their English. They can discuss questions and help students to learn new words. You can access this service over SMS, if you are in India. Visit http://www.hydrusworld.org/Tests over SMS.html 

You can use an Instant Messaging interface to access the same service if you are on the Internet. Visit http://www.hydrusworld.org/Tests over IM.html

Srinivasan Ramani