November 18, 2011

New Mobile Regulations in Indonesia Pave the Way for M-Commerce Growth

By K.F. Lai, BuzzCity CEO

The government of Indonesia has effectively 'reset' the mobile subscriptions market. It shut down all mobile subscriptions in mid-October and required content providers who wish to resubscribe their users to do so in compliance with tougher rules.

Consumer agencies have been pushing for this action against a small minority of mobile advertisers whose fraudulent actions tarnished the whole industry, for some time.

The result is good news for the whole industry (well, everyone except those fraudsters) and it took place not a moment too late. Regulators around the world are starting to recognise the importance of their role in protecting the value chain. By re-establishing much-needed trust between businesses and consumers, this paves the way for the emergence of solid m-commerce markets.

So what’s changed?
Indonesian mobile service providers have agreed to stop broadcasting SMS messages, pop-ups and voice messages containing third party promotions. New subscriptions meanwhile require a double opt-in by consumers.

The safeguards will ensure that consumers understand what they’re agreeing to, with terms and conditions displayed, and clearer ways to unsubscribe. They will also protect unwitting consumers from being caught by misleading SMS campaigns offering prizes, which subscribe unsuspecting respondents to a subscription service and ring back tones that siphon cell phone credit.

The Indonesian Consumers Foundation (YLKI) calls this “phone credit theft” and estimates that consumers suffered monthly losses of Rp147 billion (US$ 16,3m) from these practices. It also says that complaints against telecommunications providers comprised some 18% of all complaints recorded by the foundation in 2010, up from 9.6% in 2009.

Other examples
Indonesia is hardly the only country to implement tough rules aimed at mobile content and service providers.

In South Africa, consumers making a purchase by SMS or WAP need to double-confirm the transaction. In the case of a SMS, users receive a message from a carrier asking them to confirm that they would like to subscribe; the message restates the price of the service and the user has to reply “yes” for the transaction to go through. For WAP transactions, users go from a banner ad to a landing page with a click to subcribe/buy button. After they click to confirm, a carrier page appears with price details and information about how to unsubscribe. The consumer needs to click again to confirm the purchase.

In France, abusive SMS marketing practices led the government to pass a law requiring advertisers to give consumers the option to opt out of these lists. Facing a similar scenario, the Thai government set new rules for unsolicited SMS campaigns.

The immediate impact
In Indonesia, the average Cost per Click (CPC) dropped from about 14 US cents to 4 US cents overnight. After the intial drop, we've seen a gradual increase in CPC, though it's not quite back to its previous levels yet. Content advertisers have returned to the fray and are adhering to the rules, while no doubt allocating a lot of time and energy to regain their unsubscribed customers.

Short-term opportunities and long-term growth
This cycle presents brands – big and small -- with new opportunities:

•    They can get cheaper clicks and more exposure for the same advertising budgets over the next few weeks, while the content companies are getting back up to speed with all campaigns.

•    Companies selling one-off items now face less competition, which means they may enjoy higher margins in the short-term.

•    One-off mobile transactions – like the sale of MP3s, games, ringtones, etc. - are not affected by the new rules. But these content providers now face less competition as well, which is good news for companies that have adopted the Try & Buy, Mix & Match or other freemium models.

What we're witnessing are the growing pains of maturing markets. Regulators are flushing the rubbish out of the system. It's unfortunate that drastic actions by regulators have been needed in places like Indonesia; in other markets experiencing rapid growth, we hope regulators can step in earlier.