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Historically, VAS companies feel there has been a skewed revenue share structure for operators. The concern has been highlighted time and again, as it is hindering the growth of VAS companies considering the increasing cost of content development. VAS companies develop hardware for VAS services, deploy them in operators switches, develop software/applications, load the hardware with VAS companies' software, launch products, and support operators on 24x7 basis. So, basically operators are hosted by VAS companies for VAS services, but still they end up getting a meager revenue share!

Current Scenario
In most cases the revenue sharing ratio is anywhere between 3-10% of the total VAS revenue. Most companies say that the revenue sharing between operators and VAS companies starts from as low as 3% and goes up to 25% depending on the services. However, 25% revenue share is in the case of content related services like ring tones. For A2P services, the revenue share is anywhere between 3-15% only. Some companies say that VAS players get the revenue share anywhere between 25-50% of the total revenue earned by service providers. As Inderpal Singh Mumick, CEO and founder, Kirusa says, “the actual numbers in India are 25% or lower for vendors. In reality, it can drop down to even 10% for some VAS companies depending on the operator and its VAS offerings. This poses a major concern for the sustainability of VAS companies in the long run.”

While the revenue-sharing ratio varies depending upon different services, Hyderabad-based VAS solutions provider, VoiceGate, wants to take a different approach to address the revenue-sharing concern. Syed Mohammad, MD, VoiceGate states, “While there are many versions to the issue of revenue share in the market today, we at VoiceGate Technologies feel the way to look at it needs to change. All VAS players and SPs together are finally trying to eat out of a very small slice of the cake. While what we are all missing out is that the entire cake that is left.” He says further, “Together, the VAS companies and the SPs should try to expand the VAS market in India first. And to expand, VAS has to be made affordable and pertinent.”

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 Saleem Mobhani, COO, Hungama Mobile	Technology is not a barrier for providing VAS services independent of operators. But, the idea is not to compete with the SPs but to join hands and together make a bigger business Syed Mohammad, MD, VoiceGate	It is not possible to provide services independent of operators. In the VAS eco-system, any service is connected to subscribers only through the operators' network Debasis Chatterji, CEO, Netxcell

In matured markets the revenue -sharing ratio is quite different and favors VAS players. In our neighborhood Sri Lanka, the revenue share for VAS companies started from 35% and is now 50-65% depending on the products. In the UK, VAS companies get a share of 70% of the revenue while the remaining goes to the operators, and in Japan too the revenue share ratio is encouraging the VAS companies. So, the ratio between VAS companies and operators is found to be 70:30 or even 50:50 for companies outside India.

Technology Not a Hindrance
There is a perception that if VAS companies provide services directly to customers, the revenue-sharing issue will not arise, and it will encourage VAS companies to concentrate on providing much better services. Now the question is, can VAS companies going operator-independent for some services be considered an option to increase the VAS company's overall margin? How far it is technologically feasible?

According to most VAS players, technology is not a hindrance for providing VAS services directly to customers. This is already in practice in some countries in the West. But what is essential is a harmonious approach between the operators and VAS players to resolve the issue in India. Inderpal Singh Mumick, CEO and founder, Kirusa says, “While some VAS can be provided independently, a majority of the VAS cannot work without operators. These services require integration with INs, switches, billing, and numbering plans, and have to handle issues like roaming.” An open architecture like IMS makes it possible to offer more services from outside of the operator by providing access to network elements using standard APIs.

While VAS can be provided independent of operators, we need to understand that the strength of the operator lies in their reach, while our strength lies in the content Rahul Pandey, head, Mobile18	While some VAS services can be provided independently, a majority of the VAS services cannot work without operators Inderpal Singh Mumick, CEO and founder, Kirusa

Says Rahul Pandey, head, Mobile18, “When we speak about the feasibility of offering the services independent of the operator, some of the services can be operator-agnostic while some have dependency on the operators.” Introduction of relevant products for end users will definitely help the overall ecosystem. Mobile18 went ahead and marketed its first product, 'Markets on Mobile' directly to customers. It was able to achieve phenomenal results in the form of close to 5,00,000 downloads till date. He says, “This instills confidence about the potential of such products. At the same time, we are aware that India is a huge market and if a proper alliance is established between operators and content providers, the same numbers can go up manifold.” Syed Mohammad of VoiceGate echoes a similar view. He says, “It is technologically possible to provide VAS services independently from operators, and have been tried by VAS companies across the world.”

In the current Indian context, the only services possible in a non-telco scenario are SMS and WAP/GPRS services. The highest revenue generating systems, that is, IVR and CRBT being network services can't be run in the current context in a non-telco construct. Saleem Mobhani, COO, Hungama Mobile says, “I believe that if there is any such technological advancement in the future, VAS players, especially media companies, may look to provide services independently to avoid sharing revenues.”

But, Debasis Chatterji, CEO, Netxcell, has a different take on this. He says, “It is not possible to provide services independent of operators. In the VAS ecosystem, any service is connected to subscribers only through the operators' network and therefore there is no way VAS companies could reach the mobile subscriber bypassing the operators' network.” In the VAS offering processes, subscribers are always billed directly by the operators and in turn, depending on the service, operators usually do revenue sharing with the back-end VAS players.

Scenario Abroad
There is a move to make networks more open, so that services and devices can be offered independent of the SPs. In the US and Western Europe, the current situation is a mixed bag. Mobile handsets are locked to the network due to device subsidies, and subscribers cannot switch over to other SPs. Applications are offered by service providers. And while recent initiatives by Apple and AT&T make it possible for anyone to offer applications through the Apple Store, the reality is that Apple and AT&T can refuse to allow some of the applications, and it has done so in the past.

If we look at the international market, the situation is quite different. In international markets, we see a trend where revenue sharing is quite uniform and in conformance to the VAS players. IPR is still an issue in India which probably is a hindrance for the content owner's bargaining power. But in China the revenue-sharing is skewed toward the content owners who get almost three-forth of the overall revenue. Rahul Pandey, head, Mobile18 hopes that the changing dynamics of the telecom industry will render opportunities and better bargaining power for the VAS players and the skew will shift in near future.

There are very strong D2C (Direct to Consumer) models in developed markets like the US, Japan and European countries, and these models work essentially in the context where penetration of Internet is high, 3G is affordable, and credit card payments are the norm. The Web is used to sample, browse, and discover content where the download happens on the mobile device. Dada, B!, Zed and Jamba are some of the larger companies which operate in the domain.

Also, these markets have evolved very differently, where unlike India, IVR and CRBT are either non-existent or not the most popular services, even where they exist. These models are not directly possible to import to India, as we are a very unique market.

The Best Choice
Operators and VAS companies have some innate strengths unique to their own sphere. So, a cooperative approach, rather than a competing approach, will help the scenario improve in the future. Mobile18 emphasizes the importance of synergy between operators and VAS companies. Says Rahul Pandey, head, Mobile18, “While some VAS services can be provided independent of operators, we need to understand that the strength of the operator lies in their reach, while our strength lies in the content. Two parties together offer great synergies to each other.” Syed Mohammad, MD, VoiceGate, also shares a similar viewpoint. He says, “Technology is not a barrier for providing VAS independent of operators as it has been tried in many countries. But the idea is not to compete with the SPs but to join hands and together make a bigger business.”

Srinivasa Ravi, SVP, product development and strategy, Tanla Solutions, also emphasizes on the cooperative approach needed to tackle the issue. He says, “It is possible technologically to provide VAS services directly to customers, but it is not convenient for users. A harmonious approach is beneficial for operators as well as VAS companies.”

Trai's Role
Considering the market potential for value added services in the coming years, there is need to come up with a framework which ensures robust market competition, and support for innovation which is clear and predictable overin the long term.

In mid 2008, Trai issued a consultation paper on the growth of value added services and regulatory issues. The key issue raised in the consultation paper was the need to bring uniformity or clarity in the licensing conditions of mobile telecom operators with regard to provision of value added services. The consultation paper also emphasized on the transparency of the revenue sharing model of mobile VAS players.

Saleem Mobhani, COO, Hungama Mobile, says, “There are several opinions floating in the market on ways to resolve the revenue-sharing system. I am of the view that the 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.”

As Inderpal Singh Mumick, CEO and founder, Kirusa feels, the telecom regulatory body should fix the minimum revenue sharing percentage between the operators and VAS companies in order to ensure sustainability of VAS players. Moreover, there should be transparency in the execution of these agreements.

Road Ahead
Currently, the major challenge for the telecom industry is to maintain the margins, which are declining with every passing year. Besides, the commoditization of services is another area of concern. Mobile companies will look to introduce strong differentiation to break away from the clutter. Mobile18 sees it as an opportunity for the content players and people with content will have a better bargaining power.

Once 3G services introduced, there will be more revenue stream available to the operators, which might encourage them to strengthen the cooperation between the two parties benefiting the both.

3G services are likely to unlock the true potential of mobile as a media. With the introduction of smart phones with larger screens, the potential of mobile takes a positive turn. The capability of the mobile in terms of screening of graphic heavy content also offers a positive outlook. By the time 3G gets implemented, VAS companies will have multiple products with enhanced user experience, increasing the revenue stream for both the operators and themselves.

Kannan K
kannan@cybermedia.co.in