Over-the-air mobile airtime

distribution and micro-

entrepreneurship
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 88.6 million
GDP per capita* $1,710
% of individuals living on $2 a day 48%
% of individuals living on $1 a day 14%

By Household*
Total Incidence
Total Households 17 million 100%
Household Subsistence Threshold $1,190 12%
Household Poverty Line $1,790 27%
Average Household Income $4,095 -
*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 Globe Telecom

Total Subscribers 30 million Total Subscribers 20.3 million
% on Prepaid 98.5% % on Prepaid 96.5%
Total Annual Revenues $2.16 billion Total Annual Revenues $1.58 billion
EBITDA Margins 64% EBITDA Margins 64%
Revolutionizing airtime distribution
In 2003, the industry moved from physical How it works:
SKUs of airtime… 1 Go to Main Menu 2 Choose Reload

Main Menu Reload

My SIM

Select

Enter Customer Choose “Other

3 Cellphone No., press OK. 4 Denom”, press OK.

Enter 11 digit
300
mobile # 500
09171234567 Other Denom

Manually enter 1, 5, 0
5 6
…to over-the-air electronic airtime transfers
and press OK.

Enter
Enter Amount: Confirm load of
PIN:
09171234567 with
150
150 **********
Yes

The subscriber receives an SMS The retailer also

7 confirming successful reload. 8 gets a similar message.

Your mobile no. You have successfully

09171234567 has been
loaded with P150.00
worth of prepaid credits
purchased on 01-15-
2004 at 10:02AM. Trace
No:987654321
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:
• 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
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
• 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 small-
scale 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: $192 -Globe retailer: $16
-Smart retailer: $269 -Smart retailer: $22
-Retailer for both: $457 -Retailer for both: $48

Source: 2007 Globe annual report and PLDT

annual report presentation, 2007
 Mini Case Studies

Household % Profits Spent

Average Daily Average Daily Average Income % Profits Spent % Profits Spent % Profits Spent on Personal
Revenues Profits Monthly Profits (monthly) on Inventory on Household on Education Expenses

Natividad Santos, beautician $120 $17 $500 $250 75% 10% 5% 5%

Joseph Tumalip, security
guard $48 $7 $214 $405 80% 5% 0% 5%
Arnel Dimaunahan, cigarette
vendor $107 $15 $464 ≤ 190 25% 30% 20% 20%

Arlene Rasonable, housewife $120 $17 $500 ≤ 190 25% 30% 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
With Globe Percentage With Smart Percentage With Revenues Percentage
Yearly
Revenues Increase Revenues Increase from Both Increase • Subsistence-level
Subsistence Threshold Impact: Brings
for a Household of Five
(Basic Food
household almost to
Requirements only) $1,193 $1,385 16% $1,462 23% $1,651 38% poverty threshold
Poverty Threshold for a
Household of Five (basic food and non-
(Basic Food- and Non-
Food Requirements) $1,793 $1,984 11% $2,061 15% $2,250 26%
food needs)
Subsistence Threshold • Poverty-level
for a Household of Five
(in Metro Manila) $1,406 $1,597 14% $1,597 14% $1,863 33% Impact: up to 26%
Poverty Threshold for a
Household of Five (in
increase in income
Metro Manila)
Average National
$2,448 $2,640 8% $2,717 11% $2,905 19% can be spent on
Househld Income $4,095 $4,287 5% $4,364 7% $4,552 11% education,
Note: Exchange rate used: USD 1 = PHP 42
entrepreneurship or
Impact Assessment of OTA Airtime Distribution Profits (USD) better-quality
Increases Increases essentials
Monthly Yearly Increases Increases Subsistence- Increases Poverty- Average
Subsistence-Level Poverty-Level Level Income (for Level Income (for Household
Income by Income by Metro Manila) by Metro Manila) by Income by • Average-income
Globe AMAX dealer
profits $16 $192 16.1% 10.7% 13.6% 7.8% 4.7%
Impact: increased
Smart Load dealer productive vs.
profits $22 $269 22.5% 15.0% 19.1% 11.0% 6.6%
Profits for a dealer for
consumptive
both Smart and Globe $38 $457 38.3% 25.5% 32.5% 18.7% 11.2%
expenditures
Note: Exchange rate used: USD 1 = PHP 42
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