Synchronica's Costa Rican deal vindicates strategy

Costa Rican mobile phone firm Instituto Costarricense de Electricidad (ICE) is launching a push email service using the Synchronica (LON:SYNC) Mobile Gateway platform. The service will be provided free of charge to subscribers using ICE’s Accelera webmail service and GPRS data subscribers.

Financial terms of the deal were not disclosed.

Applications such as mobile email are proving a valuable weapon in the battle to retain customers as well as improving revenue per user.
Synchronica boss Carsten Brinkschulte explained: "Mobile operators are looking at data services to shore up declining revenues caused by falling voice tariffs.

“We are finding that a growing number of mobile operators from Africa, Asia, Eastern Europe and Latin America are turning to Synchronica Mobile Gateway as a solution.”

This is a point borne out by research by sector watchers such as Nick Jotischky, principal analyst at Informa Telecoms & Media.

He said mobile non-voice services, such as mobile email, continue to grow and becoming more important to the strategy of operators in areas such as Latin America. “This latest contract win for Synchronica with its 'mobile email for all' solution is a case in point,” he added.

However for a service such as push email to work it must be affordable and to work on any handset, from high-end smartphones down to entry-level devices.

Oscar Arias, director of the Services Division at ICE, said: “Synchronica's solution ticked both boxes and we're excited to be launching our cost-effective Syncronizate push Email and mobile synchronization service to all of our subscribers.”

Synchronica is aiming to establish a very big presence in the developing world with its flagship product, Mobile Gateway, which turns emails into SMS format that can be read on any phone from high-end touch-screens right down to throwaways.

The acquisition of Canada’s iseemedia, which completed at the end of last month, gives Synchronica access to additional technology that streams attachments to mobiles.

Mobile Gateway is cheap and easy to install - and tailor-made for the emerging markets.

Demand for mobile telephony and the next-generation applications might be booming, but costs must be kept low.

“You will find very few smart-phones in these countries,” said Brinkschulte in a recent interview with Proactive Investors.

“It is a very different demographic where mass market handsets and US$20 dump phones continue to dominate.

“Our Mobile Gateway works with Smartphones, but more importantly, also with mass market phones and even with dump phones. Most of our competitor products don’t work with the entry level phones.”

“(The developing economies) are the largest and fasted growing market and our product has a unique selling point in those regions.

“We think the concept of low value but high volume is a very compelling commercial strategy.”

The iseemedia deal works on a number of levels for Synchronica. It broadens the product portfolio with the document streaming software and it also gives the enlarged group a very big toe-hold in India, where the iseemedia has negotiated agreements with local giants Tata and Reliance, who between them have a 140 million-strong customer base.

Add in Synchronica’s operator customers (there are 40 in total with 660 million end-users) and you have and addressable market of more than 800 million potential users of the company’s products.

Many of these tie-ups are licence agreements, though Brinkschulte says a number of the later contracts have been negotiated on a ‘recurring revenue basis’, which simply means the firm receives a monthly subscription fee.

With the latest acquisition bedding down, the City will want to see Synchronica convert this promising strategy into profits.

The first half of the year was a good start, with the group posting revenues of £3.4 million, which puts it on course for annual sales of around £9 million, according to the latest analysts’ forecasts.

Broker Equity Development predicts the company will make a maiden £1.5 million profit in 2012.