Not too long ago, operators were focusing their efforts on trying to get
mobile consumers to talk more. Voice-based services were their key source of
revenue, as only a handful of them offered mobile content. It is hard to believe
that until a few years ago, what are now considered routine offerings like
itemized billing and SMS were some big value-added services offered by mobile
phone companies.
Today, mobile content is one of the key revenue drivers for the industry,
with the entire value chain of operators, handset manufacturers, telecom
equipment providers, and applications and content providers constantly
innovating and enhancing the VAS bouquet.
Worldwide, as ARPUs take a steep fall, VAS seems to have become a means for
telcos to survive. In India, the ARPU is the lowest in the world, and hence the
scope for innovative VAS is immense. The VAS segment can be categorized into
entertainment, infotainment, and m-commerce. There are many VAS players
concentrating on ABC (astrology, bollywood, cricket) services. Globally, mobile
VAS accounts for 25-30% of the total value of what operators generate. However,
in India, according to the Cellular Operators Association of India (COAI), it is
at 10% currently and expected to contribute 20% of the mobile revenues over the
next three years. The VAS industry in India is estimated to be at Rs 2,850 crore
and is supposed to grow at 60%, to touch Rs 4,560 crore by the end of FY '08. In
2008-09, the focus of mobile operators is, therefore, expected to shift from
customer acquisition to VAS promotion. The primary focus will be on reinvention
of traditional VAS and early adoption of high-end services.
The consumer uptake of VAS services has seen more than 70% y-o-y growth with
the introduction of consumer centric innovative services, simplification of user
interface for ease of content discovery, local and regional content in rich
formats, availability of service in vernacular languages, new technologies and
access channels. Now the need is to translate these achievements for enterprise
also.
Voice is not Enough
The urban market is fairly populated with high-end, feature-rich handsets,
leading to urban consumers expecting services to match their niche requirements,
apart from the basic VAS services. On the other hand, the rural market, which
still struggles with a relatively weak network infrastructure and populated with
low-end handsets, is poised to experience a huge uptake of basic VAS services.
Also, utility and need-based services focused on enhancing the quality of life
will see a good uptake in the rural markets. Some examples of utility-based VAS
are alerts related to farmers on mandi prices, paying insurance premiums and
utility bills, send and receive money (P2P), transact on stocks, among others.
These kind of services can target both the enterprises and retail customer
alike.
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Voice, SMS, online streaming (mobile TV), mobile radio, Internet browsing,
multimedia messaging, mobile blogging, and mobile commerce are currently some
services in use, in India. With each new mobile content that technology enables,
a new category of services and applications is created.
In India, the introduction of 3G will lead to a better experience of the
service, as high-end 2G users can be migrated and capacities freed. Also,
results from the UK and US show that 3G is able to substantially impact the
revenue from data and VAS. Internationally, speech recognition, speech
biometrics and near field communication or NFC are some new technologies in the
pipeline. For music services on the mobile phone, the subscription model is
likely to emerge in India this year. It will not replace other music download
options, but will certainly augment them and deliver yet another option for
music consumption.
In the current scenario, Bollywood and cricket are the major drivers of
mobile value added services. Bollywood is the undisputed king of content and is
being used for offering ringtones, CRBT, games and wallpapers. This is followed
by cricket, around which a majority of the remaining content is built and
marketed. Niche applications like mobile TV, social networking on mobiles,
mobile advertising and m-commerce have started to emerge, and the potential
utility of rural applications like commodity pricing is increasing
geographically. Sometime back, TTSL started offering full Web browsing access on
the low-end Huawei C2900i handset priced at Rs 1,999, empowering the Indian
masses to browse the Web in local languages on mass market phones, thus creating
ripples in the mobile Internet space.
Varied Needs
Looking forward, content and localization would be the key for growth of
VAS. For eg, currently, 7,000 full songs/videos are sold in India daily, of
which only 10% account for regional content; too low for a fact that almost 100
songs are released in a month. Also, one must watch out for mobile
data/Internet, emails, and IVR-based services that have a potential to replace
SMSes as the strongest performers, thus catapulting the industry toward a hockey
stick growth.
It needs to be kept in mind that India is predominantly a prepaid market,
with more than 80% of subscribers on prepaid tariff plans, and less than 5% of
subscribers have more than Rs 100 balance at any given point in time. About 33%
subscribers are on a lifetime plan wherein a subscriber can continue to have the
connection even with zero balance. The percentage of subscribers with a low
balance is going to increase and a majority of the new additional subscribers
will come from the non-metro and rural markets. To address this issue, the
sachet-pricing model by Reliance was an innovative pricing strategy to impress
consumers to allow mobile content snacking. The sachet concept is very popular
in India, with consumer goods businesses, to extensively sell shampoo,
toothpaste, soap, shaving gel, etc on a one-day basis in small packets.
Today, more and more enterprises are looking for business applications on the
move. Enterprises are increasingly turning to communications technology to
proactively address their requirements for convenient and effective service
while improving bottom line performance.
At the same time, the main priority of large enterprises is still the RoI.
They are also concerned about security issues, while integration of mobile
platform with their current IT infrastructure is a major hurdle. Some
enterprises want customized solutions and this may add to the cost. But the
number of enterprises deploying customized solutions is increasing. SMS
applications are also being reinvented to suit varied enterprise needs. The
demand for mobile email will continue to grow from enterprise customers. Also,
enterprise customers will increasingly use the power of mobility to add value to
various operations and business functions.
The combination of Internet access and mobility is a powerful driver for a
wealth of enterprise applications. Currently, enterprise mobility applications
are limited and mostly use SMS. This is bound to change, and accelerate in
growth over the next few years. Also, the demand for vehicle tracking, remote
monitoring and security form the basis for vertical specific needs.
Tough Task at Hand
Low awareness levels among mobile users about the kind of content available
on the mobile, customization of content and the existence of many Indian
languages making content localization a tricky task, seem to be the major
bottlenecks in promoting VAS to the lower ARPU regions.
Despite the growing popularity of mobile messaging, handsets are still not
easy to use for messaging or multimedia because a majority of customers are
unclear on how to download content on their handsets and use it. Also, the high
costs of feature-rich handsets, not affordable by low-end subscribers, act as a
roadblock for the VAS industry. Another hindrance is the lack of specialists in
many niche genres of VAS, leading to a stifling of innovation.
Slow adoption of GPRS-10-12% of mobile subscribers are connected to GPRS-which
is critical for users to download multimedia content, polyphonic ringtones, true
tones, games, and access the Internet, is also hampering the growth of the
mobile VAS market in India. With most operators feeling the saturation in tier-1
and partly in tier-2 cities, the concentration is now on tier-3 and rural areas.
Here, SMS, MMS, CRBT, and GPRS would fail (due to language restrictions) and
voice portals (in local languages with local content) would be a hit.
Enabling a Rich Ecosystem
In terms of the mobile music market, specifically segregated music content,
licensing is being driven by some VAS players in the early stage of funding who
are aggressively negotiating very high-priced exclusive rights and hence
disrupting the value of the current licensing regime.
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One should also take into account that a reliable and fast network access is
a must for which telcos' need to continue to invest heavily in infrastructure,
and the government needs to remove hurdles for effective functioning of telcos.
For example, the government needs to speed up the process of spectrum allocation
in an effective manner. Bandwidth costs for consumers need to go down, just as
they have for voice, which will allow richer multimedia services to operate.
Another area of costs is related to the percentage of revenue service providers
share with telcos for billing service. These percentages need to go down to
levels similar to what payment services like credit card companies charge on the
Internet. This is important for a rich ecosystem of services to evolve.
There is no single business model best suited for India's VAS industry.
Astute players are adopting a variety of business models which suit the needs of
different consumers. The acquisition of Soundbuzz by Motorola is an example of
entrepreneurial thinking, as it delivers to Motorola an established operation
from which it can rapidly deploy MotoMusic. In turn, Motorola provides
Soundbuzz's product access to a massive installed base of mobile handsets.
At present, there are basically three types of business models functioning in
the Indian market: companies that are experts only in providing short codes,
direct relationship with service operators; content providers with exclusive
tie-ups with operators; and application service providers who are into
voice-based services.
Among these three, application service providers have higher entry barriers
and possible success in this space, compared to others who are dependent on the
service providers calling the shots.
The revenue sharing model incorporating the risk and reward sharing model is
also a safe bet for VAS. Ideally, the VAS provider should get a major share of
the revenue, which ensures that VAS providers offer a much better quality
product to telecom operators. Currently, telecom operators earn close to 70-85%
of the price of the service, while VAS providers end-up with 15-30% of the
revenue share. In the coming times, the spotlight will also be on the
advertising-based model.
The economy is booming, leading to an increase in the spending power and
appetite for value added services. The average Indian user's comfort level with
mobile and all the applications it offers has also increased. The world will be
betting big on the Indian mobile VAS market because despite continuing growth,
only 23.07% of the country's 1.1 bn population own a telephone, demonstrating a
substantial headroom for growth.
Convergence in the telecom, media and technology space is resulting in making
mobile an essential channel alongside print, radio and TV. This convergence is
opening up many new challenging opportunities in the VAS space.
Looking beyond the horizon, VAS players need to pull-up their socks and stop
looking at themselves just as a value added service but as the service itself.
Invest, build and work accordingly. Look beyond the existing business models and
services-being the tenth content aggregator will bring no value to them.
Sandeep Budki
sandeepb@cybermedia.co.in
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