B2B Recharge Industry : The Good, the Bad and the Ugly

[Editorial notes: The B2B recharge industry in India is going through defining times. The below article will give you a complete picture of the model and the challenges associated with it.]

The Good

All telcos in India have their own individual distribution system. In conventional recharge distribution, a shopkeeper is approached by distributors of all 20+ telcos (Mobile & DTH). A shopkeeper needs to pre-buy and maintain sufficient balance in all the telcos’ accounts separately. Thus they require superfluous rolling capital to maintain balance in 20+ accounts.

In aggregation B2B recharge model, shopkeepers doesn’t need to deal with 20+ distributors and need to maintain only one account with the aggregator.

The bad

A fundamental obstacle for B2B recharge aggregators is that they are perceived as competitors by established telcos. This might be true to an extent given the encroachments into profits of airline industry by GDS ( global distribution systems).  Telcos too fear that once B2B aggregators become big, they’d arm twist telcos into giving them more commissions.

On the flip side, small telcos find it very hard to find distributors who are willing to take up their distributorship due to their low sales and market share. Thus recharge aggregators are their only hope. Recharge Aggregators actually help spring up new telcos like MTS, Videocon etc by giving them access to the market and in return, new telcos pay higher/workable commissions to the aggregators.

This is the reason why big telcos like Airtel and Idea have declared war and stopped entertaining recharge aggregators altogether, thereby effectively warding off competition by killing the distribution channel that gives new telecom players easy access to the market and reduces their entry barrier.

Unfortunately, with the 2G scam, new operators have been hit the hardest, which in turn has further damaged aggregators.

The Ugly

New players are entering this market on a daily basis without knowing what is fundamentally wrong with this industry.

So instead of making profit, most of the aggregators make losses on transactions. Then the question arises – how do they make money?

Small and new aggregators collect an initial setup/account fee from shopkeepers and their distributors to provide login accounts and shut down soon once this money is burned in op-ex and transaction losses.

The existing big aggregators are instead bleeding their capital earned in high-commission era (before 2010). Many have received funding from VCs in hope that their retail network will orient themselves in Mobile Payments industry. Some hope that they’ll become MVNO some day but this expectation is far fetched and in near future I see many of them on the verge of default.

After talking to some senior executives at big Telcos, it is clear that the situation would only get worse for aggregators in the near future.

What are your thoughts?

[About the author: Rahul Yadav started B2B recharge company, Recharge123 in March 2011 from his dorm room in IIT Bombay and sold it recently to one of the existing players in the industry.]