A VAS-cular Issue

The dominance of operators over the VAS market is being threatened with
handset makers encroaching on their territory. Handset companies like Nokia want
to capture the VAS space as demonstrated by their Life Tools project, announced
in November 2008.

Nokia's Life Tools is an SMS-alert service targeted primarily at rural and
semi-urban areas. The service aims at providing information to farmers on seeds,
fertilizers, market prices and weather conditions through their Nokia handsets.
The education service will have features such as 'Learn English and GK', with
quizzes, language lessons, and general knowledge information. In the future,
education service will also come up with information on higher education and
career guidance, and access to exam results. Astrology services and ringtone
downloads are other services.

“The success of the Nokia Life Tools pilot can be attributed to the fact that
it honed in on consumers' specific pain points, and addressed several unmet
needs in the areas that were crucial to them in their daily lives,” said Jawahar
Kanjilal, global head, emerging markets services, Nokia. “By continuously
sharpening our offerings and providing the most relevant services, we intend to
make Nokia Life Tools extremely relevant and indispensable to the target users.”

Nokia has partnered with Idea Cellular on the project and Reuters Market
Light (an SMS offering from the Reuters group), which will act as the content
provider. It plans to launch the service by June this year and it will be made
available on the Nokia 2600 classic and Nokia 1680. The service will be
accessible in Marathi, Hindi and English. Monthly subscription prices have been
pegged at Rs 30-60. Nokia plans to expand the service to other countries in Asia
and Africa later in the year.

The Market

Increasing demand for handsets in India and China, and the high prices that
users are willing to pay for quality handsets, have encouraged handset makers to
capture a larger segment of the market through diversification of services.
According to research firm Ovum, the number of mobile connections will jump 43%
by 2013, out of which 77% will be powered by India, China, and Bangladesh.

However, in other parts of the world, there is a comparative slump in handset
growth because of the economic slowdown. This has triggered handset makers to
think of alternative revenue streams. According to IDC, the global market for
mobile handsets will contract by around 8% this year. The entry of 3G is another
reason for handset companies' sudden interest in VAS, due to the possibilities
of achieving greater network capacity and incorporating high-speed Internet
access.

Changing Revenue Model

The VAS market is growing rapidly. The operators have direct contact with
consumers and this gives them a lot of power over the entire system, compared to
handset companies. Traditionally, operators get approximately 70% of the
revenues generated by mobile value-added services, with the remaining 30% going
to the content provider. VAS revenue forms about 10% of their total revenues,
which is expected to reach 18% by 2010. An average user sends around eight SMSes
a day, according to IDC, while the average number of SMSes received per day is
ten.

With handset companies entering the VAS market, the market dynamics will
change. The new model, however, requires a tie-up with the operator who will get
a share of the revenue.

This puts mobile operators in a dilemma. Operators will get a part of the
revenues and will gain by saved development costs, according to Ovum. But this
will pave way for more equipment manufacturers entering the market and taking
away a large revenue stream, which until now was solely enjoyed by the
operators.

Operators will have to think whether they want to proceed in this area by
partnering with vendors. Ideally, operators will prefer their turf being left to
themselves, but big players like Nokia might just have their way, solely because
of their strong bargaining position. With already declining ARPUs, this doesn't
present a pretty picture for the service providers.

With these new developments, the VAS market is bound to grow. And a larger
pie entitles everyone to a larger piece.

Vandana Sebastian

vandanase@cybermedia.co.in