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Sachet VAS: RCOM’s Daily Pricing Strategy; Effect On ARPU

logo-reliancecommunicationsIn a move that will give mobile users, especially those at the bottom of the pyramid, more flexibility with value added services, Reliance Communications (RCOM) has begun offering ringback tones, news alerts and games on a daily pricing model instead of monthly. According to Mint, the new model will be rolled out this month. In 2006, RCOM tested out what is being called the ‘sachet model’ in association with Jump Games, now a Reliance Entertainment company – it effectively reduced the price points as other operators were either offering subscriptions or bundling VAS.

Lower Prices = Lower ARPU?

Not necessarily. Average revenue per user is already at rock bottom – CDMA players had blended ARPUs of Rs. 111 and GSM ARPU was at Rs. 220, as of December 2008. Consider this – in 2003, the industry average was Rs. 650. ARPUs have been dropping as the number of minutes of call have fallen – text messaging is a more prevalent medium of communication and now operators are looking to drive up revenues using music, news alerts, cricket score updates and other value added services. Currently VAS only contributes 9% to revenues, compared to 18-20% globally. Based on our calculations in Q3 of 2008-09, RCOM’s VAS ARPU was just Rs. 18, inclusive of both pre-paid and post-paid. RCOM did not share non-SMS VAS numbers for Q4. Though ringtones and ring back tones have been huge successes, ARPUs are still dropping and will continue unless VAS becomes a larger part of the pie.

Now the question is – will offering the sachet model reduce the ARPU for RCOM? Would it backfire when mobile users choose shorter time frames for VAS usage – only ask for cricket alerts for a day instead of the whole season?

The operator currently has 68 million connections – both CDMA and GSM. Around 85% of its CDMA connections are prepaid users. RCOM recently launched a video news alert service with Aaj Tak, streamed live cricket matches and is now offering Formula One car races.


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