Pramod Saxena, former country head of Motorola, claims that he specialises in business development and building new projects. Little surprise, then, that Saxena has launched his own company, India Prepaid Services (IPS). Dealing in electronic transactions of pre-paid services such as airtime for mobile phones, the company is a 50:50 joint venture with the $ 800 million South African company, The PrePaid Company. Set up in April 2004, last week IPS launched its prepaid service for mobile phones, called Oxigen.
It's not difficult to see why Saxena was keen to enter the pre-paid services business along with his friend and co-promoter Sanjiv Lamba, who runs a furnishings business.
Today, nearly 70 per cent of the nearly 40 million mobile phone connections in India fall in the pre-paid category. Also, nearly 80 to 90 per cent of new connections are expected to be pre-paid.
"It made sense to launch the service in India as the pre-paid market is big only in countries like India, South Africa and Australia," says Saxena, IPS's executive chairman.
Chief executive officer Sunil Kulkarni places the total size of the mobile re-charge market at about Rs 10,000 crore. But does the country need a prepaid service provider considering that the market is serviced by distributors appointed by the cellular networks?
Each of these distributors services nearly 400 to 500 outlets in a territory and is said to be making upwards of Rs 1 crore a month.
Kulkarni agrees that the prepaid cellular market is being serviced. But he adds that IPS' Oxigen offers unmatched convenience and ease of delivery.
"Today the entire pre-paid mobile market is run on the basis of physical distribution of vouchers. That is what IPS eliminates as all transactions are conducted electronically," he explains.
Typically, a retailer today stocks prepaid cards from nearly six mobile operators. These cards are available in several denominations, ranging from Rs 50 to over Rs 1,000. So the retailer is usually saddled with physical vouchers in at least 60 denominations.
"And if he has a sale of up to Rs 5,000 a day, he has to keep an inventory of between Rs 30,000 and Rs 40,000," says Kulkarni. A pre-paid voucher is basically a scratch card with a PIN number that has to be fed into the phone.
Contrast this with what IPS claims it will do: the company buys the PINs in different denominations from different operators (it has tied up with Bharti, Hutchison Essar, Idea Cellular and BPL). These are bought electronically and sit in its main server.
At the retail end is a machine, just like the credit card swipe machine, which can deliver the PIN to the customer. This means zero inventory as no paper vouchers are stocked.
If a customer wants to re-charge his card, he can dial up and download any number of denominations from the server. Kulkarni believes that the retailer's return on investment is much higher as the margins are the same (as in the paper voucher system) and the inventory is zero.
Besides, there are many mechanisms to deliver these PINs to the consumer: apart from credit card swipe machines, the software for the electronic transaction can be loaded on a mobile phone or a PC.
"The idea is to penetrate remote areas and non-commercial complexes," says Saxena. So even a housewife in the housing societies in Delhi and Mumbai could be your next door pre-paid service retailer if she owns a mobile phone. "She could dial up the same server and download the PIN and feed it in your mobile," explains Saxena.
To be sure, IPS has already tied up with ICICI Bank to load its software on its credit card swipe machines. It is also roping in Sify's cyber cafes as retail points to sell the service.
The IPS service has been launched at about 400 outlets in Delhi and at about 70 in Mumbai. "Though the test marketing began in May, we have only just formally launched the service and will add more outlets quickly," explains Saxena. Nearly 50 towns will come under the IPS umbrella soon. "We will cover nearly 200 km around these towns too," says Saxena.
Customers will have access to roaming PINS as well. For instance, today an Orange or a BPL customer finds it difficult to re-charge his card in Delhi.
"With the server based technology, a retailer can sell any mobile operators's denominations," explains Saxena. The company is apparently open to setting up shops abroad and may be looking at Sri Lanka initially.
The technology has potential in India. It can offer services like internet calling cards and film tickets. "We can also offer pre-paid electricity cards if someone were to launch them," says Saxena. "It will be a platform for e-commerce eventually," he says. "And I see it happening soon," he adds.
Mobile marketing expert Raj Singh, executive director of Active Media, notes that the cost of distributing a prepaid card (the channel cost) for a cellular company is pretty high.
"If electronic recharging happens, it will eliminate the high channel cost. Also, you will get the PIN code at a terminal machine "� which is downloaded from the server. So it is safe also."
Yet not everyone is as sanguine about the company's prospects. A senior telecom company executive says: "The idea sounds good on paper but is no great shakes. The pre-paid card distribution system is well entrenched and the penetration is deep. So what will be IPS's USP? Pre-paid cards are available almost next door."
With investments low (Rs 20 crore for two years), entry barriers are low. "We are not saying that others can't copy our model or enter the market considering that the entry cost is not too high. But it is not an easy business. The banks are choosy about what they'd do with their swipe machines. Also, IPS will enjoy the first mover advantage. Undercutting is not really possible as it is a low margin business," concludes Saxena.
