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This is what I wrote 12 years ago about the state of the Internet in India. Amazingly, little has changed about the government inaction in boosting broadband in India.

India needs change on the Internet. Desperately. The pace of decision-making about the Internet is too slow for the rate of change and innovation on the Net. It becomes a race one has lost even before it has begun. One can read about developments abroad and dream. Of a world that could have been. For individuals, companies and yes, the government. Leave it alone unfettered and watch a thousand flowers bloom. Try and control it, and you will be writing an epitaph.

This week’s links:

• Indian Education’s Five Fault Lines: by Manish Sabharwal. “The five fault lines in Indian education don’t have a one right answer but are questions of balance: Quantity vs Quality; Repair vs Prepare; Price vs Cost; Funding vs Delivery; and Excellence vs Inclusion.”
• Drought Puts Focus on a Side of India Left Out of Progress: from The New York Times. “India’s new economy may be based on software, services and high technology, but hundreds of millions of Indians still look to the sky for their livelihoods; more than half the country’s 1.1 billion people depend on agriculture for a living even though agriculture represents only about 17 percent of the total economy.”
• The Anatomy of Determination: by Paul Graham. “We learned quickly that the most important predictor of success is determination.”
• How the Web OS has begun to reshape IT and business: by Dion Hinchcliffe. ” The concept of a Web OS isn’t new. But its arrival on the scene in compelling form with serious impact to the enterprise is.”
• Don’t Forget Email: by Fred Wilson. “In this day and age of social media and an ever expanding set of communication tools (SMS, IM, Twitter, Facebook, blog comments, etc) it is easy to forget about email. But that would be a big mistake.” A timely reminder (given that one of our business lines in NetCore is email).

In short, while a P2P SMS could cost 2p or so, an A2P SMS costs much lower (probably under 1 paisa) for the mobile operator.

As an aside, P2P SMS pricing varies dramatically – we could pay as little as 5p as part of an SMS pack or as high as Re 1 or more. A premium P2A SMS sent to a shortcode costs us Rs 3 (the cost to the operator is no different for this SMS).  It would be fair to say that there is perhaps nothing more lucrative in the mobile services than SMS!

In a market served by different operators, there is an interconnect charge for voice calls: the operator on whose network the call originates pays the operator where the call terminates. This interconnect charge is 20 paise per minute. In India, retail voice tariffs have been brought down significantly thanks to active intervention by TRAI at the wholesale level.

The principle that has been followed in the SMS business between operators so far has been Bill and Keep. This has worked well, offering such interested operator the ability to get into the A2P SMS business if it so desired.

Now, some operators are trying to introduce this charge in an effort to rachet up SMS pricing even further. While the impact on the P2P SMS is likely to be marginal since the P2P SMS traffic is relatively balanced and linked to the operator’s subscriber numbers, the impact on the A2P SMS business is likely to be substantially negative. And in going ahead with an irrational SMS interconnect charge, at least one operator is crossing the boundary of what is fair.

Continued on Monday.

As many of us have noticed, SMS is not carried on the same channel as Voice. What this means is that we can send and receive SMS even as we are speaking. SMS is actually carried on the SS7 signalling channel which is otherwise used for call set-up. As we all know, a single SMS is limited to 160 characters. So, ordinarily, there isn’t much traffic on the SS7 channels.What this means is that the incremental cost of carrying an SMS for a mobile operator is very low.

Below, I have done some estimation of the cost of carrying an SMS after talking to a few people from the industry. A caveat: These are not well corroborated facts by operators and anyone can refute the same. [On a related point, just to reinforce what I am saying, one of the operators in India has also aggressively selling A2P SMS capacity to large banks at 1 paisa per SMS.]

It is possible that the cost to carry a P2P SMS may be 2 paise or slightly more. But for an A2P sms the cost will probably be significantly lower because there is no billing involved (SMS billing can take 1p or so), no authentication needed, no cash balance checks, etc. Also, no incoming SMS airtime is used since A2P SMS come over IP, and are sent directly to the destination operators.

There is a large capex for the SMS Centre (SMSC), which is the actual infrastructure at the operator used for sending and receiving SMS. An SMSC with a capacity of 200 transactions per second, which translates to about 8-9 million daily or 250 million SMS per month can cost about Rs 1-2 crore ($200-400K). With full usage, it should be possible to recover the entire cost within a matter of months.

In addition, signalling links costs work in step functions. Ordinarily, these links are quite empty because they are only used for call set-up and SMS carriage. With A2P SMS traffic, these links will need to be augmented, but their costs are not large. (One can do more detailed calculations based on the national long-distance costs and the fact that SMSes are only a max of 160 chars long – the result will be a price that is a small fraction of a paisa as the loading due to the signalling link costs.

Continued tomorrow.

Continuing with the four types of A2P SMS:

3. Business – Promotional: These are messages sent by businesses to their customers (current or prospective). In the case of prospective customers, messages are sent to those who are not on the Do Not Call Registry. They are not linked with any transaction, and are typically used to inform them about something. For example, Crosswords sends out updates when it has its periodic Sales, while Fabindia sends out updates on what’s new at its shops. DNA sends out alerts every so often telling us the top stories in the day’s newspaper. One of the issues with promotional messages is that in many cases there is no way to opt-out of receiving these messages. A simple capability to unsubscribe (STOP) will go a long way towards making customers feel in control while receiving these messages.

4. Business – Spam: These are messages sent by businesses to individuals who are not their customers and who are among the 40 million Indians registered on the Do Not Call Registry. This is Spam, and it is what is causing a lot of grief among people today. [For the record, one can easily register for the DNC by messaging START DND to 1909, or by calling one’s mobile operator. It takes about 45 days to get registered.] Businesses need to exercise restraint and not send messages to those on the DNC Registry, else the backlash against SMS marketing will only increase.

Taken together, these four types of messages aggregate to about 100 million a day or about 3 billion a month, and have created a Rs 250 crore (annual spend) industry, of which about 35-40% flows back to the mobile operators for SMS capacity. On average, bulk SMS capacity comes to about 6-7p, with actual retail prices for specific business customers depending on their actual monthly volume.

Today, this industry is coming under threat because a number of the larger operators want to institute an unreasonable SMS inter-connect (or termination) charge of as high as 15 paise per SMS. Why is this unreasonable? For this, one needs to understand the economics of the SMS business.

Continued tomorrow.

Let us dig a little more into A2P SMS. There are four types of A2P SMS:

1. Consumer – Opt-in: These are messages we receive for free when we subscribe (opt-in) to an SMS channel. MyToday offers 40+ editorially controlled SMS channels, while MyToday Mobs, SMS Gupshup and Google SMS channels have thousands of groups in which members publish and send out messages to all members. Opt-in services are primarily monetised via ads which are tagged to the content. So far, ad revenues are not enough to cover the cost of sending the messages. This form of Consumer Opt-in SMS channels is unique to India, and holds great promise to the creation of mobile media. (Twitter has aspects of this but supports SMS delivery only in a few countries). What has facilitated the growth of this business in India is the low cost of A2P SMS delivery

2. Business – Transactional: These are messages being sent out by businesses which need to be delivered in near real-time because they are linked with a transaction that a person has done. Many banks now send out instant updates when one does a banking transaction, especially an ATM withdrawal. RBI has also mandated SMS to be used to notify customers for transactions above a certain limit. Some Yellow Pages companies send out the information requested by SMS. Going ahead, we will see tighter integration of SMS into core business processes of companies. This is very convenient because in India SMS, and not email, is what is the lowest common denominator to notify customers.

Continued tomorrow.

In this series, I will discuss the opportunities around A2P SMS. I have written earlier about the power and potential of push-based customer communications and Invertising. India has seen good innovation and growth in the use of SMS. However, recent actions by some operators are working to constrain the growth and negatively impact this industry. We will get to that later. Let us start with the basics.

There are different types of SMS (which stands for Short Message Service):

• P2P (person-to-person) SMS is the most common type of SMS that we are all familiar with. On average, each mobile subscriber in India sends about 25 SMSes each month, so the daily total is a little over 300 million.

• P2A (person-to-application) SMS is the other form of SMS originated by us, and sent to an “application” rather than a person. These messages are typically sent to shortcodes and cost Rs 3. They can be for request-reply services (get the latest cricket score) or for participating in contests or voting while watching some of the TV reality or game shows.

• A2P (application-to-person) SMS is where the SMS is sent by an application (software program on a computer) to a mobile. It is also called “bulk push” or “bulk SMS”, since these SMSes are typically sent out in large numbers. Messages that we sometimes think of as Spam fall in this category.

The A2P SMS business has grown substantially in the past few years. Businesses are using these push messages to send out near real-time transactional updates (ATM withdrawals, credit card transactions, stock trades, airline bookings), and also for promotional purposes (cross selling products, events, sales). A number of consumer-centric companies have also created opt-in SMS channels for broadcast services as well as group publishing.

On average, about 100 million SMS daily (25% of the total SMS traffic) are A2P. This business today in India is about Rs 250 crore annually.

Continued tomorrow.

In 2003, I did a presentation on what India Post (our postal department) can do. This is what I wrote in the introduction to the presentation:

The key underlying theme of my presentation: India Post as a utility, an e-Business utility. India Post should use its ubiquitous presence across the country to build an even deeper relationship with Indians. The trust that everyone has in India Post can be leveraged to bring about the computing revolution that India truly needs.

I also wrote a 4-part imagining a day in the future of a family in Nayapur.

Nayapur is the face of the New India. As a village it may be small, but that in no way represents the aspirations of its people. Life in Nayapur has been transformed ever since India Post set up its Tech 7-11 computer and communications centre a year ago. The Nayapur Post Office has 10 computers, 3 of them multimedia-enabled. They are connected to a Server, and on to the Internet via the India Post Network. The ten client computers are no ordinary computers they are of mid-1990s vintage, Pentium class machines, running at 200-300 Mhz, with 16 /32 MB RAM, and without a hard disk, CD-ROM drive or floppy disk! Many residents of Nayapur have TV-PCs in their homes, which connect to the Server at the Post Office over wireless. The local Police Station, Panchayat office, bank, school all have similar, old diskless computers which connect wirelessly to the Post Office server for their computing and storage needs. This is the amazing story of how these old computers running open-source software with full support for local languages combined with the Will, Vision and Entrepreneurial Thinking of the India Post team to transform the lives of the residents of Nayapur. The story takes you through a day in the life of one family in Nayapur.

• Part 1
• Part 2
• Part 3
• Part 4

This week’s links:

• On Cisco: from The Economist. “[Mr. Chambers] wants Cisco to become the main supplier of the essential elements of an increasingly connected economy, and to be a shining corporate example of how to use them. It should provide not only the tools of the company of the future, but also its organisational model.”
• 1o Characteristics of Great Companies: by Fred Wilson.
• The Power of Reading: from The New York Times. On Selecting books to read for students.
• Business Books for Kids of All Ages: from the 800 CEO Read Blog. “Whether it’s time to reevaluate, rejuvenate, or simply escape the demands of our busy lives, we recommend returning to the stories and lessons that were most impressive to us as children. The truths you’ll find there are timeless.”
• OurTube: from Technology Review. “‘Open video’ could beget the next great wave in Web innovation–if it gets off the ground.”

There are four game-changing developments that will take place in India over the next year which have the potential to upset the distribution of profits in the Indian mobile industry: mobile number portability, MVNO licencing, 3G and mobile payments.What does it take to build a Data MVNO business?

• Rs 80 crore for a national MVNO licence
• Partnership with one of the operators to ride on their network
• Focus on and differentiation via data services (Tata Docomo had a great opportunity to do this with its launch recently, but didn’t – it focused on voice pricing which if successful can be replicated by others quickly, and also only attracts bottom of pyramid customers)

My estimate is that this will require an investment of about Rs 200+ crore, and has the potential to deliver a topline of about Rs 2,000+ crore in 3 years for the market leader. More importantly, it will create a direct relationship with top of the pyramid, high-spending customers which can be monetised in multiple ways beyond data (invertising for businesses is one example).

The Data MVNO is an excellent example of an innovation that can be Made in India, and Made for the World.