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Recession? Pooh! the VAS segment continues to be on a high growth curve year-after-year. It has been on the growth trajectory ever since it gained momentum along with rapidly increasing mobile phone subscriptions. The recession has not made any impact on the spending of youngsters who are a major asset for VAS with about 60% of total VAS revenues coming from music downloads and caller-back ring tones from younger generation. The youth segment forms 35% of the VAS market in India. The key differentiating factor that drives VAS is the mass appeal that it has, as the Indian market is constantly craving for unique forms of entertainment.

The VAS industry has recorded a revenue of Rs 6,000 crore, an increase of 31.12% in FY 2008-09 from Rs 4,576 crore in FY 2007-08. The market for next year is predicted to grow at the rate of 30-40% y-o-y. As the operator's revenue is not affected in a big way, VAS revenue growth is also intact. The growth of mobile phone subscription in the past five years was a result of the boom seen across semi-urban and rural areas on account of low-priced handsets flooding the market and reducing tariffs from service providers. According to a report by PWC, at present mobile VAS in India accounts for 10% of the operators' revenue, which is expected to reach 18% by FY 2009-10. COAI has projected that VAS will contribute upto 20% of total telecom revenue by FY 2009-10. The mobile VAS industry is witnessing aggressive growth in India with the VAS players sharing between 25-50% of the revenue earned by service providers.

According to industry sources, though recession has had a minor hit on the the number of mobile units shipped globally in FY 2008-09, the VAS market has continued to grow at a CAGR of around 30-40% in India, constantly for the past three to four years. And the trend is likely to continue as mobile penetration is increasing day-by-day. While the mobile penetration has been on the rise, ARPU in FY 2008-09 has been on a sharp decline. This decline has been compensated by none other than data and value added services. As the dynamics of the operators' business in voice service is changing with declining ARPUs, operators keep changing the focus of their VAS services, and marketing model to compensate for the loss.

Telecom operators have started focusing on high-end VAS to withstand the impact of recession and continue to be on a high growth curve by capturing the steady flow of revenue. Most of these services are affordable at a price of 25 paise to Rs 1.5 per day. The market too has now shifted from monthly subscriptions to weekly and daily subscriptions of VAS products. Due to the affordability and sachet system, many consumers have opted to use these value added services, reducing the impact of recession on service providers.

All in the Game
Established players have been growing robust year-after-year. New entrants and start-ups are also tapping the vast opportunities available in this relatively new space. According to our research, OnMobile has generated highest revenue clocking Rs 406.35 crore in FY 2008-09, which is 55.2% growth over FY 2007-08. It emerged as the top player in the last fiscal by focusing on ring back tones, voice portals, music services such as M-Radio and interactive contests which were its power products.

One of the established players Kirusa, focused on voice SMS to generate revenue as voice SMS has added a new dimension to messaging. Kirusa's voice SMS solution has been selected by carriers-Vodafone, Idea Cellular, Loop Mobile, MTNL, Etisalat, Grameenphone, Ufone, and Warid Telecom.

Another estblished player, Hungama Mobile's revenue came primarily from music tracks, music based services and innovative packaging of VAS products, which contributed to its growth this year. For Netxcell, its new products AD axis, ICM and m-infinity and Mobismart have generated revenue in FY 2008-09. MobiSmart is the first hosted voice exchange in India that enables communication to any number of people regardless of location, language or mobile device.

For Boungiorno, managed services including text portal management, data portal management (WAP portal management), and mobile social networking for operators and media companies helped register a good performance.

Symbiotic InfoTech grew about 50% in the last fiscal and has set a target to generate Rs 1,000 mn in FY 2009-10. Its focus on entertainment and sports (text based subscription services) has contributed to its growth. For Nazara Technologies' 200% growth in the last fiscal, game downloads primarily helped. It has a huge 30% of market share when it comes to game downloads.

Yet another player, Ziva Software, focused on its product Zook for its growth. Zook helped operators to generate revenues from broader base of content. Lead generation and subscription charges are the primary revenue generators for Zook. New entrant, Nibuzz, started its India operations in the latter part of 2008 and within this short period of time it has been growing at the rate of 600,000 new registered users per month and major telecom operators like Spice have chosen this new player as their preferred partner.

Flytxt addressed all mobile marketing requirements of operators through a single integrated platform called NeonFlytxt which considerably helped the company to grow. It won order from Reliance in the last fiscal, which is a major breakthrough for this VAS player as it is the first operator it tied up with. It also bagged the account of a global Internet giant.

Industry Concerns
Skewed Revenue Share: Though the VAS segment has been on a roll year-after-year, there are some pressing issues plaguing the market. On the revenue front, a unanimous concern among VAS players is how to increase the mobile VAS revenue and how to get justifiable revenue share from operators. It is critical for the industry to move toward a profitable and sustainable business model with a fair share of revenues between carriers and VAS providers. Increasing VAS revenue requires broadening of mobile VAS revenue base beyond the traditional astrology, music, movies, sports, and other such downloads. Newer models of revenue generation that can benefit from rapidly increasing mobile user base is also essential to achieve this.

High Content Cost: The Indian MVAS market which primarily consists of prepaid customers has relatively low budget for MVAS in its overall mobile expenditure. We need to package the services in a manner which would ensure a correct mix of money and value to the customer.

Lack of Localized Content: Localizing the content is extremely crucial to encourage the uptake of VAS services among semi urban and rural users. The success from the use of regional language voice recognition validates this.

Delay in 3G Rollout: On the technology front, the delay in the 3G rollout in India owing to the dispute for spectrum allocation by the government and lack of economical, high-end mobile phone instruments that can support 3G services in the country are discouraging further growth. Poor network and data platforms availability are some other roadblocks for quick adoption of VAS services. Improved network investment by operators and launch of 3G networks would significantly improve this situation.

Operators Play Less Role: Players such as Flytxt say that operators are playing a less significant role in the VAS marketing value chain. Most of the operators are currently outsourcing the marketing of VAS to outside vendors or content aggregators who are engaged in message blasting. Even within an operator's organization, different teams compete with each other and subscribers receive too many offers, which means there is no centralized control on frequency of messages sent. As there is no proper coordination between various departments in an organization, mobile marketing becomes time consuming and resource intensive.

Lack of Nationwide Reach: A major concern for VAS players is the ability to reach consumers nationwide and effecting seamless interoperability across all carriers. Interoperability is a major issue facing us currently.

Lack of Transparency: Transparency on pricing of services and communicating clarity of pricing to consumers is missing at present from some service providers. It is important to have simple, easy to understand pricing, and to communicate the price to the user in advance of the services. Also, bundling, or even unlimited use of VAS services for a fixed monthly price should be considered.

Less Awareness: Though VAS has become popular to some extent, the awareness has not reached a heightened level. Considering the market potential in the coming years, consumers need to be educated for searching and discovery of the vast content available. It is a challenge to educate the customer that there are things beyond mobile entertainment like utility and information based services which can be very handy and useful. Once the awareness increases the VAS segment would witness phenomenal growth.

VAS Industry is Fragmented: As Boungiorno puts it, at present the VAS industry is fragmented and there is no common platform or effort to make the industry grow with common objectives and with similar interest in the telecom ecosystem.