Chicken and Egg Story

The VAS industry is now deciding the rules of the telecom
market. The trend once was that value added services were being innovated and
modified so as to suit the kind of handsets that were available in the market.
But, the recent times has seen a reversal.

MVAS in India is unfolding newer opportunities as the
mobile customer base has grown manifold and is continuing to grow with 9-10 mn
subscribers being added every month. India accounts for 10% of the operators'
revenue at present, which is expected to reach 18% by the end of 2010, says a
report by PwC. According to a study by Standford University and consulting firm
BDA, Indian MVAS is poised to touch $2.74 bn by this year.

The time has come when VAS will decide handset features;
like when you go to buy a PC, the sales person first asks you what you intend to
use the PC for.

The handset plays an integral role in the mobile
industry's value proposition. The relationship between handset vendors and VAS
is undergoing a sea change. Qwerty keypads which are now visible in most of the
emerging handsets is demonstrating how vendors are trying to capture the
imagination of the consumers.

The VAS market is witnessing a flurry of activities around
content download and application stores. The operators are focussing on
application stores and content download to increase ARPU. The Indian market is
witnessing a war between mobile operators and OEMs, and operators are also
pooling in together to have a piece of this pie to support their ever declining
margins and for expanding horizons for their limited revenue sources.

Recently, Reliance Communications has placed an estimated
Rs 340 crore order with China's Huawei Technologies for 2 mn CDMA handsets. The
handsets are aimed at increasing value added services usage across small cities,
and will also promote bundled VAS offerings as a part of its sales push.

As market conditions become increasingly competitive, the
importance of partnerships, content and services, innovative technologies and
the generation of RoI between handset manufacturers and VAS developers cannot be
underestimated.

Exploring

The evolution of the personal device is also one of the key reasons for the
phenomenal growth in subscriber numbers in India. There are many needs that are
driving the handset vendors to adapt keeping in mind the value added services

Yogesh Bijlani, country head and GM, APAC, Telenity says,
"As there is a huge interconnect between VAS and handsets; the handset vendors
and operators are now exploring this opportunity to maximize their investments,
and thus are innovating according to the high ARPU VAS market."

Following are some of the key factors that handset vendors
are keeping in mind while innovating:

Social Networking: Qwerty keypad handsets that are
in vogue enable easy chatting and access to social networking sites considering
the booming growth of Facebook and Orkut in India and abroad.

Substantiates Raghavendra Aggarwala, CEO, mBit Infotech,
"The prime mover and shaker of communication is social netwoking sites. So
keeping in mind this burgeoning VAS, manufacturers are rapidly trying to
leverage this opportunity." The microblogging sites are paving the way for low
priced handsets.

Emails: The global consumer spending on mobile
email and mobile instant messaging will touch $130 bn by 2013, according to
analysts. The email market is booming and is already gaining mileage. Handset
vendors as well as VAS developers have joined hands to promote it.

Bollywood: Bollywood and cricket will make handset
vendors think about the size of the screen so as to give an enthralling user
experience at the small screen. Handset vendors and manufacturers are constantly
innovating so as to produce handsets that will be available for less spending
subscribers, and also bring revenues from audio/video streaming, etc.

Rural Consumers: The next wave of growth in
subscriber numbers is expected from rural India. Handset vendors are opening up
options which are easy to use as well as quite affordable. The base of the
pyramid (BoP) is the driver for this mobile revolution with 100 mn users today;
and by 2012, it is expected to add over 60% of the total telecom subscriber
base, according to a recent report. Hoping to lead with VAS enabled handsets in
India, Spice Mobiles launched a VAS enabled handset S-940 to attract the BoP
subscribers.

Evolution

The handset market along with VAS has been evolving since several years.
Prabha Aithal,chief technical officer, CanvasM says, "Handset is the 'conduit'
for service providers to reach the end customers. VAS services will be
successful if the handset renders the contents smoothly and offers a better user
experience to customers."

SMS being the primary VAS service offered by most
operators, the plain vanilla clunky looking handset evolved to support text
entry, Tegic T9, predictive text and qwerty boards in smart phones. The same
applies to all the messaging applications including MMS, IM, etc. Likewise, most
VAS services drove the development of handsets to offer better UI experience and
to render the contents smoothly.

Location based services offered by several major operators
evolved the handset design to support autonomous GPS and assisted GPS
technologies besides supporting better display.

Mobile applications are being offered as a VAS service by
most operators around the world. The mobile applications market is estimated to
be worth $6.2 bn in 2010 and $29.5 bn by 2013 (according to a Gartner Report)
with downloads exceeding 4.5 bn this year. The demand for mobile applications
drove the handset market to support open OS in the handsets for developers. The
handset market is also evolving to support the OMTP's BONDI initiative to
promote the concept of 'write once deploy everywhere'.

Some of the premium or high-end gaming apps demand the use
of accelerometer and gyrometer in the handsets which few smart phone vendors
implemented, thus giving a huge boost to the mobile gaming market.

Mobile broadband or mobile Internet services drove the
handset to support high processing power, large memory, large display, reduced
latency, etc.

Pushpendra Mankad, senior vice-president, Comverse Asia
says, "Major players like Nokia, Samsung, LG, Motorola and Sony Ericsson make up
for 70% share. The market has of late seen a slew of domestic firms such as
Micromax, Karbonn and Intex making large inroads, and established brands like
Videocon and Onida entering the field."

Zeroing In On Features

Handset manufacturers and VAS players have joined hands to tap the market
together. Nokia Forum-Nokia's global developer community and support program has
more than 4 mn registered members across the globe and nurtures them with
technical information and other supports for the mobile application development
platforms. Such initiatives provide both financial as well as non-financial
support to motivate the street VAS entrepreneurs and are helping handset vendors
to have an insight into the future changes and challenges.

There are a number of interesting applications being
developed, for example, while searching the contact list in your phone, one has
to type the alphabets; but now android allows drawing the text by hand, and the
mobile phone will automatically filter results based on the alphabets. Termed as
'Gesture Search', this feature lets one search contacts, installed applications,
bookmarks, music tracks, and other data on the phone.

Some of the innovative messaging applications like XT9
from Nuance support fast and easy predictive text messaging for social
networking, instant messaging, emails and sms for various types of smartphones
like Qwerty, touchscreen, etc. Mobile search applications like T9Nav help users
to search for a specific content ondeck and offdeck, thereby increasing the VAS
consumption for operators.

Sumit Goswami, head, regional marketing, Nuance, India and
Southeast Asia says, "3G penetration worldwide is just 11% and with 3G licenses
likely to be awarded by April this year, it will be important for operators to
forge strong alliances with smartphone manufacturers."

Aggarwala of mBit Infotech also says, "Smartphones will be
pivotal in aiding app store downloads and revenues. Smartphone bundled data
plans are most likely to be introduced by the leading operators here after the
launch of 3G services."

Major effort is also being made for providing mobile
ergonomics, ease of usage and user friendly icons and access methods for VAS
services. An increased consumer demand for access to the services and
applications for a rich mobile Internet experience like high-definition (HD)
content for video, imaging, audio, gaming, etc, are also promoting innovations
at all levels.

Handsets will continue to evolve to support better
display, audio, video, location, battery technologies. They will use components
that will consume less current to improve battery life. They will also have
higher processing power to support concurrent sessions, multiRAB (combination of
voice and data channels) and multiRAT (multiple radio access technologies such
as 2G, 3G, 4G, etc) as mobile broadband becomes widely available.

The competition in the handset market is set to intensify,
and force the manufacturers to innovate and differentiate their products in
terms of hardware, software and content.

Way to Go

Mobile web based apps will play a dominant role in the coming times compared
to the existing tsunami of device based apps in the app stores. The primary
focus considering the handset design will be on providing an intuitive mobile
web surfing experience and integrating additional hardware and software enablers
like productivity tools, Qwert keyboards, better cameras, innovative
touchscreens, rich browsers, etc. Operating systems will be the differentiating
factor with Android and MAC OS expected to lead the race.

However, there are impediments that are yet to be
overcome. Deepak Halan, group business director, IMRB International says, "Lack
of a common technology is a big challenge." He further adds, "Perhaps Qt-a
cross-platform application and UI framework from Nokia is the answer."

Using Qt, one can write web enabled applications once and
deploy them across many desktop and embedded operating systems without rewriting
the source code. It provides the building blocks-a broad set of customizable
widgets, graphics canvas, style engine, etc, that need to build the modern user
interfaces.

Shelley Choudhary, MD, Unisys Infosolutions says, "Some of
the current barriers are the need assessment of the VAS services, language
barriers and bandwidth issues."

OEMs are being squeezed on ASP with a larger mix of low
cost handsets figuring in their portfolio. This has led many of them to try and
find after-market sources of revenue. AppStores are one way to try and tap into
a recurring revenue source. However, this is proving quite difficult as the
demographic profile of emerging markets show that subscribers are unlikely to
have or use credit cards or bank accounts for any transactions. The most
effective form of payment today is via stored balances that are held with the
operator.

The barriers for small application developers or even OEMs
to secure a feasible and cost effective means of payment are many. Without an
effective payment collection mechanism, all after-market services may face
difficulty in thriving. This is one of the principal challenges facing the new
generation of VAS services.

Shaking Hands

The Indian telecom industry is quite unique as far as the handset vendor and
operator relationship is concerned. Unlike the west, the Indian players work
independently with almost negligible synergy. It is important that a very strong
VAS ecosystem exists which should include operators, handset vendors, content
providers and independent software vendors for the 3G services to be viable and
VAS to be tapped completely.

Archana Singh

archanasi@cybermedia.co.in