Pay per second or per minute?

Fri 23 October 2009 by Thejaswi Puthraya

Lots of my friends and acquaintances have moved to a new GSM service that promises them a pay per second service. On their website it clearly mentions that if you talk for 67 seconds then you pay only for 67 seconds and not for 2 minutes like other providers. The service I am talking about is Tata Docomo (yes, the Docomo from Japan). I tried dissuading a lot of them mentioning it was actually costlier but no one would listen. So today, I am writing it down not just for their benefit but for others too.

Before I begin the explanation, I make some assumptions:

I am considering Airtel because it is the largest mobile service provider and offers a pay per minute scheme in India and Tata Docomo because it pioneered the pay per second scheme in India. Most assumptions will stand good for other pay per second and pay per minute service providers.
The Tata Docomo plan that I refer to is the well advertised 1p/1sec plan with a 1 sec pulse rate.
The Airtel plan is any base plan with RC-53 (ie an annual rental of Rs 53 that reduces your local call rates including wirelines to Rs 0.50).
Both these plans are well documented on the respective service provider websites for Andhra Pradesh (that's where I live).
I am not taking the cost of RC-53 voucher into consideration because it account to Rs 0.15/day which is almost negligible.
I am excluding STD (out-station calls) charges because it is very difficult to compare two unlike plans.
Both plans are prepaid. I am excluding post-paid because 94.3% of mobile connections in India are prepaid.

I have written a small python script that dumps a csv file with the call costs for both providers till 600 seconds (ie a call duration till 600 seconds in steps of 10 seconds).

from math import ceil
from csv import DictWriter

def main():
    dw = DictWriter(open('airtel_docomo.csv','w'), ['Number of Secs', 'Airtel Cost', 'Tata Docomo Cost'])
    dw.writerow(dict(zip(dw.fieldnames, dw.fieldnames)))

    for i in xrange(10, 600, 10):
        dw.writerow(dict(zip(dw.fieldnames, [i, ceil(i / 60.0) * 0.5, i * 0.01]))

 if __name__ == '__main__':
    main()

If you don't understand the code, no problem. I am just creating a file with the costs of both providers for every 10 seconds upto 600 seconds. If you are a code police, then please forgive me...this is just a quick and dirty script.

I then used a plotting program (for the curious, it is gnuplot) to visualize the results.

So clearly, Airtel is costly if a call lasts less than 4 minutes. Post that, you can see that Tata Docomo is costly.

Diet SMS vs Vanilla SMS

Now let's focus to the other unique feature of Tata Docomo, Diet SMS. Under this scheme they charge you per character (1p/1character).

According to TRAI's latest figures (June-2009), the average number of outgoing SMSes per subscriber per month is 28. So I calculate the cost based on this number.

Further assumptions:

The subscriber sends only local SMSes.
Linearity ie the subscriber sends the same number of characters throughout the whole month.

The comparision:

The cost of 28 SMSes in Airtel without any special scheme is Rs 28/month. This plan is very uneconomical and hence I compare it to another.
The cost of 28 SMSes in Tata Docomo ranges from Rs 0.28/month to Rs 44.80/month depending on the characters. The average price is Rs 22.50 (approx).
Now Airtel has a scheme where they offer unlimited local SMSes for a flat payment of Rs 22/month.

The accompanying code is given below:

from math import ceil
from csv import DictWriter

number_of_messages = 28

def main():
    dw = DictWriter(open('airtel_docomo.csv','w'), ['Number of Chars', 'Airtel Cost', 'Tata Docomo Cost'])
    dw.writerow(dict(zip(dw.fieldnames, dw.fieldnames)))

    for i in xrange(1, 161):
        dw.writerow(dict(zip(dw.fieldnames, [i, 22.0, i * 0.01 * number_of_messages])))

 if __name__ == '__main__':
    main()

Here are the graphs:

As you can see, Airtel turns out to be a lot cheaper if your SMS volume is huge else you are good with Tata Docomo

Why is pay per second so enticing for people?

Actually, this is a hard question to answer because it involves some psychology. But I believe most people are falling for the marketing.

Another explanation could be that Tata Docomo has studied the national averages and come out with a plan that closely matches these numbers.

From TRAI's, quarterly report for the quarter ending June,2009, it mentions that the national average minutes of usage (MOU) (includes both incoming and outgoing) is 454 minutes/subscriber/month ie approximately 15 minutes/day. And out of this only around 30% is outgoing (the time for which you pay). This is around 5 minutes/day and for such low usage pay per second is beneficial.

I believe pay per second brings in healthy competition...

Ideally, competition is good because it gives the customer more choices. But the kind of competition that has started now is not healthy, it is destructive. Companies are slowly killing each other and in the process, the customer.

How can the customer be harmed?

Most of these telecom companies invest crores of rupees in licensing (just for a rough idea, around 10% of their Gross Revenue. For Airtel it is nearly 1000 crores), billing, marketing, network maintenance and expansion and customer service (free for the customer but a huge expenditure to the company). This kind of competition is definitely bringing down call costs but affecting the companies and in turn the customer.

Here is data from the same TRAI report to confirm the same:

Average Outgo Per Min = (Rental Revenue + Airtime Revenue)/Total number of minutes. The Average outgo per minute decreased to 0.74 in June from 0.76 in March, 2009 (It was Rs 15 exactly a decade ago).
But look at the call drop rate (number of calls disconnected), it increased to 2.56% from 2.05% in the same period with a benchmark of < 3% (very close to crossing that limit). Also look at the deterioration in customer service. The number of complaints per 100 bills issued increased to 3.21% from 1.37% in the same period with a TRAI specified benchmark of < 0.1%.
The average revenue per user (ARPU) too decreased from Rs 205/month to Rs 185/month.
The number of minutes of usage (MOU) too decreased from 488 to 454 minutes. So the customer has reduced the number of calls despite the costs decreasing. The number of outgoing SMSes too reduced from 30 to 28. So mobile carriers are losing revenues from their core and value added services.

The companies that are in to make money are losing money....What an irony!

So is this the end of conventinal mobile companies?

If stock analysts are to be believed, the answer is "YES". They triggered a large sell-off in telecom stocks recently because of the competition and have downgraded earnings.

My answer is a "probably not". I believe the company which manages to retain customers by providing them the best network and moderate call rates with superb customer service will survive. You can see a lot of consolidation in the telecom space in the next 2-3 years. Lots of these new (and probably some well established ones) companies will struggle to survive and will merge (comparable with what happened in the Indian aviation sector nearly 3 years back). I think the next big thing that could affect mobile operators in a huge way would not be competition but number portability (where the customer can switch operators while retaining the same number).

Finally, I would like to inform all mobile subscribers to choose a service based not just on the call rates or marketing but also on the important features like network superiority and customer service.

Be a happy and informed customer!

Annexure: Most statistics are taken from here.