Value Added Services: Emerging Partnerships

In many ways, telecommunication is attributed as a chief factor

leading to the development and integration of the globe. At this juncture,

telecommunication is taking on an all new 'avatar', a form infinitely more

powerful than all that we have ever seen, its poised to bring together people

like never before and challenging the very concept of distance. Similarly, the

global media and entertainment sector has been on its prime of health and is

projected to reach a phenomenal $1.8 tn by 2015 wherein India's share would be

about 12%. For most part, these two sectors have had an independent development,

but that would just be history. We are witnessing one of the most powerful

unions-the integration of media and telecommunication.

'Convergence' is the new buzzword and is moving from the

drawing board into our lives and changing the very basics of how we communicate

and access media. voice, video, and data are being bundled together and

delivered in forms and platforms that ensure ease of use and ubiquity.

Technology improvements are catalyzing the process at spiraling speeds. As the

possibility of rendering more meaningful content becomes an increasing reality,

a whole new substructure is forming in the realm of content and its delivery.

VAS in India



In India, the market size of players basic value-added services (VAS)
like ring tones and wall papers is around $155 mn while that of players with

basic services and voice portals for the operators is around $900 mn. VAS

revenues are balancing the receding ARPU. In order to create service

differentiation and satisfy the diverse Indian customers, mobile operators are

bringing in a vast array of VAS. Thus, there is an increased transformation of

business models with an aggressive focus on VAS. Hence, VAS is increasingly a

growth area helping mobile operators to maximize their revenue and grow ARPU as

well. The prospects of high growth of this niche segment has attracted wireless

operators, handset manufacturers, content developers, music and film companies,

cartoon artists, game makers, etc.

The typical Indian primarily looks towards religion, local film

industry, the nation's cricket team, and regional news channels for daily

guidance and entertainment. Recognizing the opportunity, mobile operators are

partnering with content providers to deliver information services on the go and

downloadable services like ring tones, wallpapers and graphics. Several

web-based cricket websites and television news channels are teaming up with

operators in India to develop SMS-based applications that provide the user with

on-demand cricket scores of the latest matches in progress and also news

updates. Similarly, movie production houses and recording studios have also

teamed up with mobile carriers to provide movie memorabilia in form of graphics,

wallpapers, ring tones and ring-back tones of the popular movies, and also the

latest movies running in the theaters.

Our study involved research on the VAS sector primarily through

a combination of primary and secondary research. We started off initially by

preparing a detailed questionnaire, went in for focus group discussion and of

course looked at publicly available secondary inputs. The response to

questionnaire indicated that the industry structure and the rules of the game

are so fluid and non-standard that the leading players don't want to reveal

their cards. The industry was not in its normal state of affairs.

The China VAS Experience



We decided to study the Chinese VAS market, as the market is definitely
bigger and more stable than the Indian market but nevertheless is still in its

growth stage and hence gives us ample scope for realizing the various forces and

their interplay. The market scale of mobile VAS was two bn RMB Yuan in mainland

China in the year 2001, and in 2007, it is expected to be 95 bn RMB Yuan.

We observed that the important factors that are driving the

growth in China are: (a) political environment, supervision and regulation on

telecommunications; (b) effects of policies on mobile VAS; and (c) technical

environment of VAS (say, the use of soft switch are allowing the greater use of

VAS). The Chinese Ministry of Information Industry (MII) plays a very important

role in the whole information industry and influences each entity in the VAS

value chain closely through stipulating regulations and laws. In case there were

no proper regulations then the competition would have been unpredictable,

destructive and price based.

Indian Players: Nature of Interaction



In India, VAS players are predominantly small and medium enterprises (SMEs)
with major players among them being Mauj Telecom, On-Mobile, Mobile2win,

Cellebrum, IndiaGames, IMIMobile and Roamware. Our analysis reveals a complex

web of relationship emerging in this sector.

Players at every stage of the value chain seem to have struck

some kind of relationship with every other player in the industry, its range

from supplier-client relation to partnerships to revenue sharing and technology

sharing. This strange web of relationship seems to be the defense mechanism of

this milieu against the high degree of uncertainty prevalent in the sector.

Thus, we have content creators like IMImobile colluding with network operators,

technology providers, content aggregators, and media companies. Well, this is

not a one off case as almost all the players in this sector are linked to every

other player in the sector through some mechanism. This complex web also acts as

a medium of rapid information prorogation and keeps the players in pace with the

industry development.

Bargaining Power



Our analysis of the industry does not indicate a clear winner appearing
in this emergent segment, and no particular player is poised to grab a major

section of the pie. We identified five broad players in this industry-network

operators, content aggregators, content creators (processors), original content

creators (media companies), and technology support companies.

While the last three were playing the part of enablers in the

industry, while the first two were the dominant players in the industry. Our

study indicates the formation of a bipolar power structure with the network

operators (like Bharti) and the gateway companies (content aggregator like

Indiatimes 8888) as value chain leaders. It's probably this bipolar structure

that gives stability to this industry and delivers the maximum value to the

customer. The network operators have the delivery and customer proximity

advantage while its greatest threats are its shortage of large and relevant

content along with the high degree of competition among the network operators,

hence they cannot push their bargaining power far enough when dealing with the

gateway companies. Similarly for the gateway companies, their content base and

relationship with multiple operators is their greatest asset.

The number of content providers is large and since they have

more or less undifferentiated products they do not command a great bargaining

power. When we compare on size then none of the content providers, aggregators,

or service providers are large players while the MNO are larger companies with

deep pockets, this could definitely tilt the balance of the equation towards the

MNOs.

Another dark horse in this race could be the large media

companies (such as CNBC TV18, Indian Express, Star TV, Times Group, and TV

Today) who are the original owners of the content and who till now have kept a

very low profile in this industry.

Survival is the key in Indian market and thus we see the

emergence of strange kind of partnerships and how they could evolve over time.

We see the numerous ways in which companies' mitigate this risk through

multiple partnerships, associations, and even investment sharing.

The second key learning was the critical role technology played

towards convergence of media and telecom. Technology seems to be defining and

redefining business in morbid rapidity thus creating and destroying value space

at similar speeds. Business models in such markets would also be a very

interesting phenomenon and would be directed at increasing the customer value

and also centered on the most powerful player in the value chain. The fact that

the power center itself is highly dynamic allows for very creative business

models to emerge.

If the "Steam Engine" attempted and achieved to bring

the distance between places smaller, the revolution happening in the telecom

domain will succeed in bringing the world into your palms. Hence, we sum up with

the following lines-"The wired entertainment is dead; long live the

wires, welcome mobile entertainment".

Dr Ram Kumar Kakani, faculty

at SP Jain Center of Management, Singapore, and



Jackson Fernandez P, independent consultant in India and Singapore



vadmail@cybermedia.co.in