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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.

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.

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