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Value added services have matured globally, and, today, form a considerable portion of the total telecom revenue. The focus is now on mobile entertainment and commerce, location-based services, and new and enhanced services in the next generation network (NGN) environment.

Though it is growing at an exciting pace world over, and India is among the top 3 countries for the mobile and Internet VAS industry, the challenge is to retain customers, develop alternate revenue streams, and create a basis for differentiation in a high churn market.

The biggest anomaly in the system is that while the number of companies and the demand for such services is increasing, the revenue model shared between VAS companies and operators leaves a lot to be desired. VAS providers feel that the ratio of revenue share is heavily skewed in favor of telcos, which is not the case in other geographies. The innovation in mobile VAS can only be supported once content providers start getting their share of revenue like in Japan and the UK.

As things stand, mobile VAS or MVAS has emerged as a great opportunity to rescue the industry from declining ARPUs. The future will see service providers shift focus from subscribers base expansion to value added services, as it has more potential.

Beyond Subscriber Acquisition
In its infancy, the VAS industry in India lacks proper processes, common benchmarks, and code of practices. Operators, VAS providers, and consumers being the three main stakeholders of this business, need to cooperate and coordinate, to help the industry flourish. However, lack of transparency is becoming a hurdle, as consumers are not aware of the finer points of VAS like pricing, instrument requirements, etc.

People are unaware of VAS because operators are busy with subscriber acquisition and creating a better infrastructure to support growth. They have not focused their efforts so much on VAS. In fact, for some operators, revenue from VAS has decreased.

According to Nitin Patel, VP, Marketing, Telenity, “Telcos' near term outlook seems to be more on acquiring new customers and less on service awareness. The revenue share ratio between telcos and VAS providers in India is 70:30, substantially more skewed in favor of telcos than in other countries.”

But considering the market potential for value added services in the coming years, there is need to harmonize the licensing and regulatory framework for ushering growth in all segments of VAS. Though the demand for VAS is increasing at an exciting pace, it is generally believed that the revenue is not proportionate to the demand.

Debasis Chatterji, director, Operations, Netxcell, says, “The revenue share pattern is very poor so far as VAS players are concerned. Even in a country like Sri Lanka, on an average, VAS companies manage 30-55% revenue share from operators, whereas in India most of the VAS companies get 8-15%.”

It is also believed that operators typically keep the lion's share of revenue for themselves. This is something VAS players consider a stumbling block for future innovations. In countries like China, Thailand, etc more that 80% revenue is shared in favor of VAS providers. But the current level of revenue share restricts the visibility, penetration, and innovations on mobile space in India.

“We need to understand what the real VAS numbers are. Most reports say that it is 10% of operators' revenue. But at the same time, it includes P2P SMS revenue, which is not shared by operators with VAS providers. It also includes some other services like Blackberry, which is not VAS. In that sense VAS may not be that big, and revenue is proportionate,” says Vijay Shekhar Sharma, MD, One97 communications.

Revenue sharing with operators depends on the type of VAS offered. Some VAS players are of the opinion that revenue should be market driven, where each player in the value chain gets his share of the pie, based on what value he brings to the table.

Rajesh Jain, MD and founder, Netcore, says, “Mobile operators along with subscribers are at the center of the mobile ecosystem. Mobile operators can only determine revenue share. For the service where subscribers pay, mobile operators have the full prerogative to determine the revenue share. There are opportunities to create new services where revenue is generated from entities other than subscribers, which increases the pie for everyone.”

Keeping this in mind, Trai recently issued a consultation paper on the growth of value added services and regulatory issues. The key issue raised in the consultation paper is the need to bring uniformity or clarity in the licensing conditions of mobile telecom operators/access service providers with regard to provision of value added services. The consultation paper also emphasized the revenue share model in mobile value added services value chain and its transparency.

Over a period of time operators have accepted the role content has and will play in driving the growth of VAS in India.

“The revenue share pattern is very poor so far as VAS players are concerned” Debasis Chatterji, director, Operations, Netxcell	“Revenue share between telcos and VAS providers is 70:30, substantially more skewed in favor of telcos than in other countries” Nitin Patel, VP, Marketing, Telenity	“We will witness the long-term business model being shaped on volume instead of margins”  Rahul Pandey, head, Mobile 18

Revenue Strains
The past couple of years have seen numerous players entering the VAS segment, and this has helped existing players to carve a niche for themselves. Presence of more players in the VAS domain has helped to expand the market.

According to prominent leaders in this space, the impact of multitude of new players shows positive signs. And VAS has very positively contributed to their businesses. Entry of new players helps the existing leaders, and ultimately the consumers.

“The entry of new players has not affected our business because we always factor the threats from the new entrants. That is why we are constantly developing new and cutting edge applications to beat competition on one hand, and on the other hand, we are focusing on new markets to increase our top line,” says Debasis Chatterji, director, Operations, NetXcell.