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India’s approach to Direct Carrier Billing is problematic

India’s Department of Telecommunications yesterday allowed mobile users to purchase digital content, like apps and e-books, by making payments from their prepaid balance and post-paid bills, up to a value of Rs 20,000. This follows a recommendation from the Watal Committee report on digital payments, which explicitly said that direct carrier billing is not permitted under current regulations, but that the RBI, TRAI and the DoT should allow Direct Carrier Billing.

The good news first:

The most significant development in this announcement is that now prepaid users can purchase apps and services using their mobile balance. Remember that though direct carrier billing had been launched earlier last year (with a deal between Idea and Google), it had subsequently been limited, via a direction from the Department of Telecom (we were told by sources), only to postpaid consumers. Google subsequently also launched carrier billing for the Play Store with Airtel, with the same limitation. Over 95% of India’s user base is prepaid: the first put money into their mobile account, and then use it for purchases. This development will allow apps creators to target more than just the 1%.

The terrible news:

The Department of Telecom has also said that “Such purchase of digital content shall not be treated as pass-through revenue for the purpose of computing Adjusted Gross Revenue (AGR) for license fee and spectrum usage charge.”

Now, this is myopic and creates a massive disincentive for carrier billing.

One key reason why content creators did not want to integrate carrier billing was the additional charges that were levied on the content. Because the government taxed telecom operator revenue for license fee and “spectrum usage charge” (together called WPC charges). The Indian government takes a certain percentage (around 8-10%) of a telecom operator revenue as Adjusted Gross Revenue. Historically, these charges amounted to 12-13% in total. On top of that, telecom operators would keep their own revenue share, the aggregator (like Google Play Store would keep theirs, and the remainder would go to the content creator. In 2014, Vodafone was giving 60-70% of money to the aggregator, post taxes. To simplify (and do correct me if I’m wrong about this):

Historically, with WPC Charges, for every Rs 100 that was spent on Mobile VAS, in a best case scenario:

  • For every Rs 100, the government gets Rs 13. Rest get Rs 83.
  • From the Rs 83, the telecom operator keeps Rs 24.9 (30%). Rest get Rs 58.1.
  • From the Rs 58.1, the aggregator keeps Rs 17.43 (30%). Content provider gets Rs 40.67

In a worst case scenario:

  • For every Rs 100, the government gets Rs 13. Rest get Rs 83.
  • From the Rs 83, the telecom operator keeps Rs 58.1 (70%). Rest get Rs 24.9.
  • From the Rs 24.9, the aggregator keeps Rs 7.47 (30%). Content provider gets Rs 17.43

Of course, revenue shares may vary, but this indicates how for content providers, much of the revenue gets lost in transmission.

What Google and Idea had done was a best case scenario. For an app that cost Rs 100

  • For every Rs 100, government got Rs 0, since this was treated as pass-through-revenue
  • For Rs 100, Idea levied a 16% convenience fee. Rest got Rs 84
  • On the Rs 84, Google took 30% as app store (aggregator) charges. Developer got Rs 58.8

From what we heard, the structure varied by circle, but that is unconfirmed. Still, it is a better deal than what happens when there are WPC charges.

Pass through revenue or not

Our recommendation, in 2014, was:

1. Take carrier billing out of the mandate of telecom license fees, and treat them as pass-through revenue
2. Kill the revenue share, enforce a transaction fee
3. Enforce verification of billing (to prevent fraud, which was/is rife in case of mobile VAS)

The argument against here is that purchasing an app or a video online isn’t utilization of spectrum: consumption of data is. So while the government should get a revenue share for usage of data, it shouldn’t be applicable to the act of paying for something. This can actually be contested in court, but I doubt that will happen: telecom operators don’t really care that much about carrier billing; they have other battles to fight in court.

What can happen next

It’s not likely that the telecom operators and the Google Play Store will shut down direct carrier billing just because WPC charges are applicable. What they can do, is change the way they are working together. It’s a little complicated, but here goes:

  • Recharges go to wallets, not prepaid account: Airtel, Idea, Vodafone, Reliance Jio together account for most of India’s mobile and Internet users. All of them have licenses for wallets, and wallets can do auto recharge. What telecom operators can do is ensure that any prepaid recharge goes straight to a wallet account, and this money is available for payments, and for topping up recharges of the prepaid mobile account.
  • Play Store junks carrier billing, and switches to wallet payments: tie up with multiple wallet services, including all the telecom operator wallets. At present, the Google Play Store has no wallet partnerships.

The only question that remains: is it worth it?

For direct carrier billing aggregators, like Fortumo, Boku and ipayy, this is option isn’t available, so WPC charges will remain.

Our past reports on Direct Carrier Billing:

Download: Department of telecommunications notification

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