Choices: “Rusiyavata vadiya lokuyi irisiyava”

December 3, 2006 (LBO) – Recently, the Telecommunications Regulatory Commission issued an order setting the maximum price that could be charged for an SMS at LKR 5 per message.

Given that SMS messages have never cost that much and their prices have dropped down to as low as LKR 0.50 depending on the package, one would be justified in wondering why the TRC took this action.

Why is it regulating a price that is decreasing due to competition; why is it setting the price ceiling at a level far above where current prices are.

Surely, it has more important things to do, like address the serious problems of price and quality of leased lines that are hampering the progress of the (Business ProcessOutsourcing (BPO) industry).

But then one realizes that this is the beginning of Super Star season. This decision is aimed directly and solely at Super Star. The decision affects Premium Voting/Requests via SMS only.

The SMSes used in voting for the Super Stars in the inaugural season cost LKR 10; many irisiyakarayas (those jealous of the success of another, commemorated memorably on the backs of three wheelers) objected to the “high price” of these SMSes, among other things; the JVP actually put up posters on the streets asking people to boycott Sirasa.

They no longer enforce their boycotts with guns or by chopping off fingers, luckily.

The people ignored them and watched Super Star like it was religion. It appears that the TRC is pandering the irisiyakarayas and kowtowing to the JVP.

In playing these cheap political games, the TRC is doing serious damage to the emergence of innovative InfoServices in Sri Lanka. This is not what one expects from the independent regulatory agency in charge of the most dynamic sector of the economy.

Given that its Chairman is the current prime mover behind e-Sri Lanka and it comes under the President who has taken a personal interest in e Sri Lanka, this retrograde behavior is somewhat surprising.

This silly decision was driven by ignorance and desire for cheap approbation, not vindictiveness or jealousy, one hopes. It will be reversed by sane counsel and sober reflection, one believes.

InfoServices conundrum

In a developed market, an entrepreneur seeking to offer an electronic InfoService (an infopreneur) has a relatively easy task. Millions of people use the Internet; almost all of them have credit cards.

If she has a service that she believes people are willing to pay for and she can communicate the existence of her service to them, all she has to worry about is whether it will sell. The platform for distributing the service and the mechanism for receiving the payment already exist.

In a country where only 4.1 per cent of households had computers (2004) and where credit card holders are so few in number (and even they have to jump through fifteen hoops to make a payment on the Internet; in addition to paying stamp duties on top of debit taxes), the Internet-credit card duo is pretty useless as a platform for offering InfoServices on a commercial basis.

That is the conundrum: unless efficient distribution and payment mechanisms capable of reaching a significant part of the addressable market exist, there won’t be new InfoServices; unless there are new InfoServices, the distribution and payment mechanisms won’t develop.

The most promising platform for InfoServices in Sri Lanka is the mobile phone. There are more than 4.5 million mobile users in the country. Even if you assume it to be a personal device, that’s around a third of the addressable market, excluding the elderly and young children.

In actual fact, a mobile can be, and is used by, family and friends, suggesting that at least half the commercially addressable market is already on this platform.

Not only can they be reached, they have a readymade payment mechanism in hand. No need for credit cards and the monstrously convoluted verifications devised by tax collectors masquerading as bankers; the payment can be deducted using the phone company’s billing system with minimal added cost.

So how does this work? Assume you are the entrepreneur of the year with the InfoService product of the century. All you have to do to get product to market is:

  • Reach an agreement with the mobile company or companies of your choice, that could include an easy-to-remember number and a revenue-share or fixed payment for the use of the platform and the payment mechanism;
  • Launch your marketing campaign.

Has this been done? Yes.

Take e-channeling, the service that allows you to get an appointment with a consultant physician without visiting the hospital and standing in line.

There are many ways to use this service, but one of the simplest is the mobile. Call the advertised number; follow the instructions; and make the payment through your mobile bill.

And Super Star was another.

It was not just an SMS; it was an entertainment service. You the audience were being empowered to vote in real-time for the singer of your choice.

Members of an extended focus group that my research organization conducted in Matale on a different subject saw it in grander terms, as inclusion in democratic processes. That report stated:

“A key advantage of a phone, as seen by participants, is its ability to promote democratic participation. The example presented was a reality TV show . . . to select a ‘Super Star’ . . . based on the SMS/phone voting by the public. . . . Study participants viewed this as a case of telecom enabling the ‘unheard’ to voice their opinion. . . . They felt that their voice was heard; that they have been elevated from the level of mere observers to that of active participants in democratic processes. . . . None of them complained of having to pay five times the regular cost of an SMS to place their votes.”

So what’s wrong with price control?

The extended focus group participants found no fault with the pricing; but those with irisiya larger than Russia did. What is wrong with setting a reasonable price ceiling?

First, it is unnecessary. Second, it is detrimental to the emergence of innovative InfoServices in Sri Lanka.

Why is it unnecessary?

Was voting for the Super Star something people had to do, like calling the bomb squad? No, it was a discretionary act. It was entertainment. You don’t like the price; you sit on your hands.

But it may be that the TRC doesn’t believe in consumers exercising free will. Maybe they felt there was a degree of compulsion involved. Was one compelled to use SMS only? No, the phone option was there; not from one operator but from several. It was less hassle to use SMS; which is why people used it. What’s wrong with paying for convenience?

If I am running a BPO, I am compelled to use one of three operators to buy the international connectivity essential to do my business (and create jobs for young people and bring export revenues to the country).

If I want to use the cheaper and newer SEA-ME-WE 4 cable, I have a choice between only two companies because Sri Lanka Telecom is behaving anti-competitively.

If I put too much pressure on the operator, my leased line can fail at most inconvenient times. Now, that is a situation where a consumer faces limited choices and one that seems to require the urgent attention of the regulator. But no, he’s too busy regulating Super Star!

Bottomline: if an operator sets too high a price for a discretionary service, people won’t use it (that’s the meaning of the word discretion). The boost that SMS use got in this country from Super Star was such that operators would be crazy to overprice it, in any case.

The price control decision is also based on a misconception that voting for Super Star was just another SMS. There are many costs associated with the use of these kinds of services that are not visible to the end user (but should be known to the highly trained regulatory professionals of the kind we are supposed to have inside the TRC), including:

  • Costs associated with peak load. Networks are designed for normal use. The kind of use generated by TV and radio programs is abnormal, in that they induce large numbers of calls/messages to be sent to a number, more or less at the same time. This requires prior reconfiguration of network resources.
  • Costs associated with back-end processing. To an electronically illiterate person an SMS is an SMS. But the SMSes that went to Super Star are inputs to a realtime voting system. If the voting system was part of the mobile network, that operator has to bear additional costs; if it was part of the TV station, it has to bear those additional costs.

There is nothing wrong with these costs being paid for by the user of the service.

They will pay anyway, Sirasa not being a charitable organization. Is advertising the only legitimate form of payment? Why not direct payment?

But there is nothing wrong with either of the companies (the TV station or the fixed or mobile operators) making some profit from the new services that are provided. After all, it is profit that drives innovation, not regulatory diktat.

There is also nothing wrong with the SMS providing a revenue stream for the larger enterprise. Super Star does not come cheap.

The prizes, the clothes, the makeup, the musicians, the hosts, the judges, the guests, the use of the Dambulla stadium; all these things cost money.

What is wrong with the viewers making some contribution? When they go to see a film or a musical show, they can pay for a ticket; why not pay for voting? It’s not like they’re electing the President; it’s not like they are being paid for their vote.

The TRC should not go down this road. It cannot be making detailed determinations on the costs of back-end processing and peak-load message handling. It need not, in a competitive marketplace.

All it needs to do is ensure that the user is clearly notified that the service will cost extra. The price is known; the transaction is done or not done; that is it. Those who don’t like the price don’t send the SMS. End of story.

Why is the TRC decision detrimental to innovative InfoServices?

I do not know what the revenue sharing arrangement between Sirasa and the telecom operator was for the LKR 10 charged for the Super Star SMS in the inaugural season.

Maybe the operator kept it all. It does not matter; the principle is what does.

The present decision affects SMS used for voting. But it sets a bad precedent. “Labbata thibba atha puhulata thiyanne nadda?”

Let’s work it out the implications of over-regulation of premium SMS through a concrete example.

Assume that someone wants to offer realtime prices from an agricultural or fish wholesale market to buyers and sellers.

The Internet is out, for obvious reasons. So he is left with automated voice recognition (AVR) services on the phone or SMS.

How does the infopreneur cover his costs and make some money? Two solutions exist, both using the capabilities of the telephone system: charge extra for the call to the AVR service or for the SMS; give a percentage or a flat fee to the telecom operator and run the business with the rest.

What’s wrong with the TRC poking its snout in here? If the ceiling is LKR 5 (hypothetical, because the TRC ruling now affects only voting SMS), the maximum the infopreneur can make is LKR 3, assuming the operator’s CEO went to school with him from Year One and is going to be content with extra revenues from the SMSes alone. Otherwise the maximum is in the range of LKR 1-2.

Unless the agricultural/fish price information can be provided for less than LKR 1-2 per transaction, our infopreneur is out of business; the potential users are out of a useful information service; and the country is on a slow government train to nowhere.

In pandering the irisiyakarayas, the TRC is helping transform the dream of e-Sri Lanka from that of a “smart island; smart people,” to the nightmare of a “backward island; jealous people.”