Telecom companies charged Amazon $100 million for its Phone bill!

Amazon billed $100 million

Global Market
by 5paisa Research Team Last Updated: 2022-12-09T20:11:50+05:30

“Out for delivery - Your order from XXXX is out for delivery. Our delivery partner would be at your doorstep shortly.”

This message must have brought a smile to your face a lot of times. Amazon sends dozens of these messages to its customers. But these messages cost a fortune to the e-commerce giant.

$100 million or INR 800 crores is what Amazon has to pay to Telecom companies for these messages.

Okay, just to give you some context, Meesho, an e-commerce retailer made that kind of money in FY 21.

The price tag Amazon is paying for these messages is huge, and considering it is paying much more than the domestic players, as telecom companies like Reliance, Airtel, and Vi, charge it international SMS rates.

Amazon wasn’t happy paying a massive amount, but since India is one of its biggest markets, it had to comply with the rules. Things got bad when last year telecom companies decided to hike the SMS price for international players to $0.03, or Rs. 2 per message. This price is around 20 times higher than the rate telecom companies charge to the domestic players.

Now according to telcos, “Any entity that has its cloud servers outside of India and has data of Indian customers being processed by those external data centers is classified as international,”.

Amazon couldn’t take it, it decided to seek help from TRAI, it alleged that telcos are overcharging it and they should not charge it international prices as its messages originate from servers in India.

While telecom companies argued that the company has its servers outside of India, and its messages are triggered by servers located in Dublin and thus they have to charge international prices from the company.

These prices have not only pinched Amazon, but also the local companies that have to use SMS services extensively, like Fintech companies and Banks. They have to send messages to share transaction details, OTPs, login credentials, and whatnot. 

These companies knew telecom companies would not budge and hence they decide to seek help from RBI to loosen the guidelines a bit. Companies like Google Pay and Paytm filed a petition to consider allowing app-based notification for transactions.

Their argument was that the country recorded digital payment transactions worth Rs 8,734 crore in the financial year 2022, and the cost of SMS -based notifications would be approximately Rs 1048 crore. If they used, in-app notifications the cost would have just been about Rs 8.8 crore.

Just like these companies, Amazon texts its customers for a variety of reasons, like login, resetting the password, OTPs, etc. According to the report Amazon sends approximately 300 million messages in a month in India, while Meta - which has Whatsapp, Instagram, and Facebook spends a similar amount for all apps combined.

The reason Amazon is fighting hard to establish the fact that its messages are from Indian servers is that TRAI has prescribed termination charges of 5 paise for domestic messages. Termination charges are basically charged that operators levy on other telcos for terminating the messages. For international messages, there isn’t a prescribed charge and hence Telcos can charge international players according to their will.

Now, Amazon wasn’t the only one suffering from this high tariff, other international players like Meta and Google were also bearing the heat of tariff hike, but unlike Amazon, they decided to solve the issue.

They went to the telecom companies and politely requested them to work out long-term agreements, wherein the tariff would be economical and Telecom companies could not have said no to them, as they have invested billions in them. For instance, Meta owns 9.99% of Jio platforms, while Facebook owns 7.73% of it.

Sadly, Amazon does not have any such strategic alliance with a telco in India.

That's why Amazon decided to take matters into its own hands and knocked on the doors of TRAI to look into the matter, but given the financial state of Telcos in India, TRAI chose to be silent on the matter. Amazon makes up for more than 20% of the international messages sent in India and charging it domestic SMS prices could have led to a loss of millions for Telcos hence the regulator decide to not act upon it

Well, Amazon could not budge the telcos, rather it decided to cut down on the messages it sends to its customers to lower the financial burden. It reduced the number of messages per order from six-seven to two-three. It has also defined a fixed order value to determine whether a customer would receive a message or just an app notification which costs much less.

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