Phone home: why mobile providers are so eager to tap directly into overseas remittances

Caribbean mobile/cellular service providers have been running campaigns to get family and friends overseas to top up loved ones’ accounts from abroad. This post examines why they are so eager to employ this strategy.

Business World With Moblie by emptyglass (FreeDigitalPhotos.net)Over the past few months, have you noticed an increase in the SMS text messages from your mobile/cellular provider? If not, lucky you! For many of us across the region, these messages – which are sent almost daily – tend to run the gamut of reminders of free texts and potential minutes, to short-term promotions. However, recently, there have also been messages to get friends and family, in the United States, Canada and the United Kingdom in particular, to top up your mobile/cellular account from overseas.

While this promotion might appear somewhat gimmicky and far-fetched, a recent article in our news roundup clearly highlights Digicel implementing this approach in order to tap directly into overseas remittances to the Caribbean:

Digicel is tapping into South Florida’s close ties to Haiti and Jamaica in a campaign that asks families stateside to send minutes home… Customers stateside can pay to send airtime minutes to family and friends’ pre-paid cell phones in the Caribbean. The concept is not new, but Digicel is seeking to broaden its reach…  (Source: Miami Herald)

Overseas remittances

Table 1:  Total remittances to select Caribbean countries in 2011 (Source Multilateral Investment Fund/IDB)
Table 1: Total remittances to select Caribbean countries in 2011 (Source IDB)

According to the Inter-American Development Bank, remittances to Latin America and the Caribbean increased by 6%, from USD 57.6 billion in 2010 to USD 61 billion in 2011. As reflected in Table 1, which shows a breakdown of remittances to CARICOM/Caribbean countries, considerable sums of money are being sent back to the region, which not only supplements residents’ incomes but also is a vital contributor to national economies. Moreover, the World Bank projects that remittances to developing countries worldwide will continue grow from an estimated USD 406 billion in 2012, to approximately USD 534 billion in 2015.

Declining ARPU

Although overseas remittances might be an important supplement to the income of Caribbean residents, the continued economic decline that is still being experienced across the region tends to mean that such funds are increasingly subject to a number of competing priorities. Moreover, since the majority of mobile/cellular customers in the region are prepaid subscribers, they are able to more tightly control their spend on such services, and even cut back, should they no longer be in a position to afford it.

Across the region, the dynamics in telecoms markets have also been changing. Regulators have been lowering mobile/cellular termination charges, and are moving away from (or even eliminating) asymmetric charging practices between different services that had been previously adopted. For example, in June 2012, the Office of Utilities Regulation in Jamaica established an interim mobile termination charge of JMD 5.00 (USD 0.06), which lowered the amount payable between providers by as much as 45%. Similarly, over the last four years, mobile termination rates in the French West Indies have dropped by 47% (Source: IrishTimes.com).

The depressed economic climate, changing telecoms markets, along with other factors, such as the upswing in the use of free or Internet-based messaging services, has resulted, to varying degrees, in declining revenues for mobile/cellular providers. Although Digicel is a privately held company, and so is not obligated to publish its financial records, in its bond offering issued last year, the company did highlight that for the three-month period, April to June 2012, Average Revenue Per User (ARPU) decreased by 9.6%. Hence its customers have been spending less on its services (Source: IrishTimes.com).

LIME’s parent company, Cable & Wireless Communications plc (CWC), has also reported a declining ARPU. In its interim management statement published earlier this month, the company revealed that although its mobile/cellular subscriber base in the Caribbean is growing, the corresponding monthly ARPU had declined by about 6% from December 2011 to December 2012 (see Figure 1).

Figure 1:  Comparison of active mobile/cellular subscriber numbers versus monthly mobile/cellular ARPU (excluding equipment sales) by CWC subsidiaries in the Caribbean (Source: CWC)
Figure 1: Comparison of active mobile/cellular subscriber numbers versus monthly mobile/cellular ARPU (excluding equipment sales) by CWC subsidiaries in the Caribbean (Source: CWC)

Profits versus utility?

Without a doubt, the Caribbean remains especially lucrative for many telecoms companies, and frequently is a significant contributor to the business’ overall profitability. However, there is also continuing pressure to increase, or at the very least, maintain profitability levels, which in turn is driving telecoms companies to employ more creative ways to generate revenue and to issue substantial dividends to their shareholders. For example, for the end of the 2011/2012 financial year Digicel paid a dividend of USD 115 million, and in June 2012 it paid a ‘quarterly dividend of $10 million and a “special” dividend of $300 million’ (Source: IrishTimes.com).

Although the strategy to target the Diaspora to directly top up mobile/cellular accounts from overseas might seem somewhat blatant and tacky, in light of the considerable sums that are already being “sent home”, the Diaspora is also eager to stay connected. Calling rates to the US, Canada and the UK from the Caribbean tends to be cheaper than the other way round, and hence there may be some benefit to allowing regional expatriates to stay better connected.

 

Image credit: emptyglass (FreeDigitalPhotos.net)

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