Per Second Billing Does Not Portend Financial Ruin for Mobile Network Operators: Part-1

Tata DoCoMo recently launched it’s GSM service with per second billing around two months ago in India. To a market used to per minute billing all along, this was the first taste of per second billing. Not surprisingly, there’s been a lot of buzz in the media around how per second billing would lead to cheaper mobile phone calls and, as a corollary, result in financial ruin for mobile network operators should they follow suit with similar tariff plans of their own. In fact, the stock  price of Bharti, India’s largest MNO with 110 million subscribers, crashed 15% in the Bombay Stock Exchange one day after rumors surfaced – and later denied – that India’s telecom regulator was going to force all MNOs to switch over to per second billing.

According to the logic used in various media reports, a 20 second call would cost 20 paise under per second billing, drastically lower than the 60 paise that it currently attracts under a typical 60  paise per minute plan with per minute billing (for those who are not familiar, ‘paisa’ is one-hundredth of rupee (INR), India’s major currency, and ‘paise’ is its plural; in other words, paisa is to rupee what cent is to dollar). Therefore, according to these reports, revenues of MNOs will fall drastically if per second billing becomes the norm.

This logic is flawed.

When I had a per second billing plan in Germany in the early years of this decade, I recall that the first minute was always charged in full regardless of the actual duration of the call. In other words, per second pulsing happened only from the second minute onward. This seems to be a common practice even now, as you can see from these examples of per second billing plans in Africa and Canada. So, the 20 second call in the above example would be charged 60 paise, regardless of whether the billing happened on a per second or per minute basis.

Now, let’s consider call durations exceeding one minute. Depending on whether MNOs apply their per minute tariff to bill on a per second basis – thereby charging 1 paise per second – or not, call charges may or may not reduce.

Regardless of the tariff, MNOs have several options by which they can not only prevent a fall in their revenues but can actually harness per second billing to fuel the next phase of their market penetration and revenue growth while simultaneously providing greater choice to their customers. Part-2 of this post will cover some of these options. Watch this space!