Over-the-air mobile airtime distribution and microentrepreneurship
A study of Globe AutloadMAX and Smart Load in the Philippines
Professor Annette Krauss SEEK 956 Submitted by: Amy Ng, Makiko Yamashita and David Zarraga, June 2008
An overview of Philippine poverty
Per Capita
Total Population
GDP per capita* % of individuals living on $2 a day % of individuals living on $1 a day
88.6 million
$1,710 48% 14%
By Household*
Total Incidence
Total Households Household Subsistence Threshold Household Poverty Line
Average Household Income
17 million $1,190 $1,790
$4,095
100% 12% 27%
-
*Numbers based on: (1) 5.39 individuals in an average household; (2) current exchange rate of USD 1 : PhP 42
The Impact of ICT on the BoP
• Reducing the BoP penalty is not a main driver for ICT industry
• Main driver is to serve the attractive majority of the population • The overlap: the BoP comprises the majority of the market!
• Market-driven innovations have benefited the BoP: • Sachet marketing – small SKUs • SMS-specific products and services • Prepaid mobile service
• OTA airtime distribution for easy access to mobile service • The Impact of Telecoms on Economic Growth in Developing Countries (2005) says that access to ICT improves:
• ability to partake in efficient daily activities
• act in emergencies • Maintain family and social relations
• Earn or save financially through the mobile phone
The Philippine mobile industry
• Geographic fragmentation – 7,107 islands make landline installation difficult
• Low landline penetration – 3.2% • Mobile penetration – 60% or 53 million subscribers
• 97% of all subscribers are prepaid due to flexibility and absence of a credit check • Small-denomination SKUs for prepaid airtime - as little as $0.50 per card • Predominance of SMS: 20 messages per subscriber per day at a cost of 1 peso ($0.024) per SMS sent → almost 400 billion SMS messages a year! • 8-to-1 ratio for the cost of a 1-minute call to 1 SMS message
Smart Communications
Total Subscribers
% on Prepaid Total Annual Revenues EBITDA Margins
Globe Telecom
30 million
98.5% $2.16 billion 64%
Total Subscribers
% on Prepaid Total Annual Revenues EBITDA Margins
20.3 million
96.5% $1.58 billion 64%
Revolutionizing airtime distribution
In 2003, the industry moved from physical SKUs of airtime…
How it works:
1 Go to Main Menu
Main Menu
2 Choose Reload
Reload My SIM
Select
3
Enter Customer Cellphone No., press OK.
4
Choose “Other Denom”, press OK.
Enter 11 digit mobile #
09171234567
300 500 Other Denom
…to over-the-air electronic airtime transfers
5
Manually enter 1, 5, 0 and press OK.
6
Enter Confirm load of PIN: 09171234567 with 150 ********** Yes
Enter Amount:
150
7 confirming successful reload.
Your mobile no. 09171234567 has been loaded with P150.00 worth of prepaid credits purchased on 01-152004 at 10:02AM. Trace No:987654321
The subscriber receives an SMS
8
The retailer also gets a similar message.
You have successfully loaded P150.00 prepaid credits to 09171234567, 01-15-2004 10:02AM. New bal P1,000.00. Trace No:123456789
* Sample SMS Confirmation
The Distribution ‘Family Tree’
Telecommunication Company
Distributors Sub-Distributors
Dealer
Dealer
Dealer
Dealer
Sub-Dealers
Sub-Dealers
Sub-Dealers
Sub-Dealers
Subscribers
Source: Paysetter, www.paysetter.com.ph
Product Strategy:
Above the line advertising:
• Globe and Smart are consistently among the biggest purchasers of tv, radio and print advertising in the Philippines • Extensive brand-building effort makes them two of the most recognizable brands in the country • Huge advertising support for launch phase of OTA airtime distribution products SMS Broadcasts:
Promotions and Innovations:
• Introduction of SIM-swapping and raffle promotions to induce competitor churn and increase airtime sales • Electronic airtime SKUs in 1 peso ($0.024) increments • Launch of all-text electronic airtime
Point-of-sale collaterals
• SMS messages160 to 480 characters in length
• Instantaneous promotion of new products and new promotions to all prepaid users or to a select group (such as OTA airtime dealers) • Marginal cost of broadcasting is zero
• Extremely useful for retailers, since airtime retailing drives traffic to their stores
• Banners and signage promoting OTA airtime retailing goes out to over 600,000 mom-and-pop retail stores (sari-sari stores)
Source: 2007 Globe annual report and PLDT annual report presentation, 2007
Results:
Coverage:
- 610,000 AMAX dealers as of 2007
- 800,000 Smart Load dealers as of 2006, 90% of which are microenterprises (sari-sari stores and individuals) - Estimated 870,000 dealers in total nationwide; over 700,000 smallscale dealers in the country
Impact on Carrier Revenues:
- Between 60 – 85% of all prepaid airtime is purchased and loaded through the OTA airtime channel - Globe estimated its system processed 2.1 million OTA airtime retail transactions daily in 2005 - Selling a combined airtime value of approximately $2.2 billion a year
- $1.9 billion goes to carriers, $0.33 billion goes to retailers
Dealer Profits:
Annual Monthly
-Globe retailer: -Smart retailer:
$192 $269
-Globe retailer: -Smart retailer:
$16 $22
-Retailer for both: $457
-Retailer for both: $48
Source: 2007 Globe annual report and PLDT annual report presentation, 2007
Mini Case Studies
Average Daily Revenues Natividad Santos, beautician Joseph Tumalip, security guard Arnel Dimaunahan, cigarette vendor Arlene Rasonable, housewife $120 $48 $107 $120 Average Daily Profits $17 $7 $15 $17 Household Average Income Monthly Profits (monthly) $500 $214 $464 $500 $250 $405 ≤ 190 ≤ 190 % Profits Spent % Profits Spent % Profits Spent % Profits Spent on Personal on Inventory on Household on Education Expenses 75% 80% 25% 25% 10% 5% 30% 30% 5% 0% 20% 20% 5% 5% 20% 20%
• Mini Cases used to provide qualitative support to the case study
• Due to lack of time, a simple question-and-answer survey was sent out to six OTA airtime retailers (four responses)
• All are retailers within the greater Manila metropolitan area – higher concentration of population so most probably will register greater revenues than for retailers in rural areas
• Results:
• OTA airtime retailing can increase monthly household income to more than twice the usual level
• Vital consumptive spending and even productive spending (such as for education) is supported by profits from OTA airtime retailing
Impact
Income Impact: Increase in Annual Income due to OTA Airtime Distribution
Yearly Subsistence Threshold for a Household of Five (Basic Food Requirements only) Poverty Threshold for a Household of Five (Basic Food- and NonFood Requirements) Subsistence Threshold for a Household of Five (in Metro Manila) Poverty Threshold for a Household of Five (in Metro Manila) Average National Househld Income With Globe Revenues Percentage Increase With Smart Revenues Percentage Increase With Revenues from Both Percentage Increase
$1,193
$1,385
16%
$1,462
23%
$1,651
38%
$1,793
$1,984
11%
$2,061
15%
$2,250
26%
• Subsistence-level Impact: Brings household almost to poverty threshold (basic food and nonfood needs)
• Poverty-level Impact: up to 26% increase in income can be spent on education, entrepreneurship or better-quality essentials
$1,406
$1,597
14%
$1,597
14%
$1,863
33%
$2,448
$2,640
8% 5%
$2,717 $4,364
11% 7%
$2,905 $4,552
19% 11%
$4,095 $4,287 Note: Exchange rate used: USD 1 = PHP 42
Impact Assessment of OTA Airtime Distribution Profits (USD)
Monthly Yearly Increases Increases Subsistence-Level Poverty-Level Income by Income by Increases Increases SubsistenceIncreases Poverty- Average Level Income (for Level Income (for Household Metro Manila) by Metro Manila) by Income by
Globe AMAX dealer profits Smart Load dealer profits Profits for a dealer for both Smart and Globe
$16 $22
$192 $269 $457
16.1% 22.5% 38.3%
10.7% 15.0% 25.5%
13.6% 19.1% 32.5%
7.8% 11.0% 18.7%
4.7% 6.6% 11.2%
$38 Note: Exchange rate used: USD 1 = PHP 42
• Average-income Impact: increased productive vs. consumptive expenditures
Recommendations
• Tracking retailer data can encourage NGO support for carriers’ BoP initiatives
• By explicitly targeting the BoP and measuring results, carriers can enlist support of NGOs in further penetrating the BoP market • Training and establishing a retailers’ association will improve adoption of OTA retailing • Facilitates experience sharing and peer training • Creates a ‘team identity’ which can reduce percentage of inactive retailers and increase retailer loyalty to a carrier • Partnering with the government can lead to more mobile services for the informal economy and the BoP • OTA and SMS technology can be implemented via related applications • Bureau of Internal Revenue allows business owners to pay for company registration fees via SMS
• Regulations encouraging mobile banking penetration may boost access for BoP
• Mobile banking is in place, encouraging domestic remittances (from urban to rural areas) due to lower transaction costs.
• Combination of OTA distribution network and m-banking application may facilitate swifter adoption at the BoP