MVAS - Music to the Ears of Indian Telcos

Looking at the changing dynamics of the Indian telecommunications industry, telecom operators are betting high on 'Mobile Value Added Services' (MVAS) as the next wave of growth, as a large chunk of revenues is expected to flow from VAS in the coming years.

The last decade of the Indian telecom industry truly was an era of ringtone revolution. Stepping in the new decade, the industry is sure to herald the age of information tone revolution. Information in terms of awareness on mobile value added service and applications that have the ability to strengthen and leverage the digital infrastructure being built in the country.

With traditional revenue sources for the operators like voice and messaging at bottom levels, the subscriber churn, as a result of mobile number portability, is adding to the operators' worries. So it is quite natural that the operators are taking a safer route and betting on VAS as the next big opportunity to sustain and succeed in the market.

According to PwC, the mobile VAS market in India has the potential to generate '55,000 crore by 2015.

VAS Market

As per V&D100-the annual survey of the Indian communications industry-the Indian cellular market for FY11 is estimated to be around '102,230 crore, ie, $22.3 mn and this market is growing at the rate of 16.6%. Of this total amount, VAS or non-voice revenue for mobile operators contribute around 13%, which translates to '13,026 crore. It is expected that the Indian VAS market is bound to increase to '32,000 crore in FY15. All this will happen only when operators provide stable 3G and 4G network and quality of experience so that data services improve considerably.

The Indian VAS market is also bound to grow as operators have already invested around '100,000 crore in terms of 3G and BWA auction, and they are presently in search of a series of killer applications that will help them recover their auction money. Not only this, they are also looking at killer applications that are less bandwidth consuming and can bring a large chunk of revenue.

Growth Drivers

With 3G services, a new era awaits mobile users with faster and robust mobile internet and a better access to data services.

The launch of 3G services in India opened up a plethora of opportunities for VAS players. With 3G services, the operators will now be able to offer richer services such as mobile internet and video, as there is greater bandwidth available to deliver an enhanced service experience. While the operators will continue to offer pre-3G existing VAS, such as ringback tones, messaging, and infotainment services; there will be an opportunity to offer services that require more video or image based content, such as telemedicine, wireless teleconferencing, and e-learning.

VAS will also play a critical role in bridging down the digital gap between urban and rural masses, with operators coming up with innovative offerings to suit customer demands in all regions. Of late, VAS has also helped in digitally empowering the masses as it continues to play a major role in m-governance and m-commerce. Offerings like medical facilities, an SMS away, or mandi prices for farmers on phone, have even made the government to take a keen interest in the development of VAS. Innovations such as location based services, mobile TV, m-wallet have given the best breed of personalized services on mobile devices.

Market growth drivers on the supply side include declining ARPU, brand differentiation needs, and growing focus on entertainment-related content; demand-side drivers include the booming Indian economy, increasing user comfort with basic mobility services, personalization of content, devices, and cheaper handsets. From the early days of 'Person-to-Person Short Message Service' (P2P SMS), the industry is witnessing the growing portfolio of services including graphics/wallpapers downloads, ringtones and caller ringback tones (CRBT), SMS contests, and games.

What's Hot

With the continuous erosion of voice revenues, the tendency of operators and vendors to explore alternate sources of revenue, is the main focus. With the trend moving from voice to non-voice, services like mobile TV, m-payment are picking up at a rapid pace. Apart from this, location based services, advertising solutions, personalized applications, and other services are also expected to rule the roost.

3G and enhanced smartphones penetration is only going to make it easier for content providers to reach out to a larger population with relevant content, specifically dedicated to users and making it directly available to them.

Challenges

There are many reasons that can be attributed for the lack of VAS take up in the country. One reason why the VAS industry in India has not done well is their complete dependency on an operator. The VAS players need to delink partially from the operator and start focusing on non-operator business in a big way-be it government, enterprise, and M2M applications.

The industry also calls for a policy framework for itself. A VAS policy framework can be understood as the underlying set of guidelines governing an industry, which serves to provide a vision and direction, taking into account the unique characteristics, needs, and impact of that industry.

For MVAS to have a far reaching and significant penetration, the ecosystem will need a robust supporting infrastructure of high-quality network infrastructure, coupled with adequate mobile phone penetration. Growth of mobile phones along with falling prices, coupled with entry of 3G is an encouraging trend. However low connectivity in rural areas (~23% penetration) and low penetration of smartphones continues to be a large constraint. An ecosystem which has an equivalent participation from all value chain players, and facilitates fair distribution of benefits ensuring the long-term growth and sustainability of the industry. Inequitable revenue share, lack of transparency between telcos and content providers, lack of innovation or lack of incentives for innovation, and ensuring relevance of application for the Indian populace are some of the major challenges for players.

Also, the consumers today are more from the prepaid segment, which comprises more than 50% subscribers whose prepaid balance is less than '10. Therefore the segmentation needs to be done with which customers who do not have money to pay for VAS, wherein, brands will be paying for their advertising inserts.

Looking Ahead

The future of MVAS in India will be all about delivering the right stuff to the right person at the right time, based upon the right monetization model-be it fee based or ad-supported free offerings. In a vast and diverse market like India, this also means delivering VAS solutions in the right language and in the right format (audio, SMS, web, video).

Although there are a plenty of challenges that the utility MVAS space confronts today, however the opportunities are enormous too, given the increasing proliferation of mobile phones even in rural and remote areas and the rapid development of technology including the foray of 3G.

It is clear that the MVAS space is set to witness a high-growth trajectory, creating tremendous opportunities. However stakeholders across the value chain will have to work collaboratively to overcome barriers and create a business ecosystem that generates fair rewards for all the players.