The future lies in VAS

The Indian telecommunications industry, with over 600 mn mobile phone
connections as of April 2010, is now touching new heights with value added
services (VAS) being seen as a segment having enormous growth potential.
VAS
is
now acting as the prime mover and shaker of the application services. VAS
constitutes data, music, information and infotainment. The usage of VAS is
expected to grow by leaps and bounds in the aftermath of the launch of 3G
services. The mobile VAS market registered 15% growth during the last fiscal.
The mobile VAS
revenue
grew to Rs 6,900 crore from Rs 6,000 crore, according to
Voice&Data estimates.

VAS is playing a crucial role in bridging down the digital gap between urban
and rural masses, with operators now 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 (LBS), mobile
TV, m-wallet have given the best breed of personalized services on mobile
devices.

With the ARPUs falling due to voice calls in the country becoming the
cheapest in the world, the Indian operators are now focusing on VAS to curb
their falling profits. VAS contributes 10-15% of the operators' revenue. There
are many factors that are responsible for the growth of VAS. Among major ones,
are the increase in the number of smartphones, an ever increasing interest in
social networking sites, an appetite for data intensive services and also an
inclination of consumers to go beyond voice-are shaping the phenomenal presence
of VAS.

With 3G services ironing its way in, the VAS industry is expected to increase
its share manifold, with some industry estimates pegging the figure at Rs 200 bn
by 2015.

Going by the market demands and industry interests, it can be easily inferred
that in the coming times VAS (and not voice) will be the major driver of the
Indian telecom industry. The onus now lies on the telcos and government to give
real value to VAS.

Growth Drivers

The VAS segment is showing steady growth and still has tremendous potential.
Backed by a growing consumer class and middle class, young population and
increasing discretionary spending, India today is one of the biggest VAS markets
in the world, making it the region of choice to launch innovative solutions
through different platforms.

VAS growth has been further spurred by increased focus on this segment by
operators, thanks to steadily declining voice ARPUs and cut-throat competition.
The imminent mobile number portability has also driven operators to offer unique
and innovative value added services to differentiate themselves in the market.

Availability of rich content, access to which is simplified through solutions
such as OnMobile's MSearch, has also increased consumer awareness and uptake of
VAS.

Business Deals

In December 2009, One97 Communications acquired a 21.28 % ownership interest
in tenCube, which developed WaveSecure, the mobile phone security and data
back-up application services. Also before, the company had secured a 54.99 %
ownership interest in Oorja, a subsidiary that provides
mobile marketing

services to telecom service providers.

OnMobile in the last fiscal had an agreement with Telefonica, the world's
third largest operator, for exclusive market rights to deploy over twenty
different value added services in the Latin American Region (130 mn subscribers,
across thirteen countries). Several of the core services will be exclusive to
OnMobile.

Comviva also struck a deal with Bharti Airtel for providing it managed
services. As a part of this three-year deal, Comviva will manage more than 2,000
of Airtel's VAS nodes across India from various partners, to meet defined
service level agreements. Incidentally, Comviva is providing services to Zain
Telecom so after the Bharti Airtel and Zain tie-up, it's services might be
consolidated for the same. The company has its presence in Africa since 2003.

Netxcell had a strategic agreement with Clockwork Mobile-a mobile content
management company in the content space where it will be managing all Clockwork
Mobile's content, from digitizing audio content, uploading content to operator's
portals, to producing/generating mobile content, including voice based
applications as required by Clockwork. The company also partnered with
AquaSanTec as part of its Africa entry. It has set up Netxcell Mauritius, a
subsidiary of Netxcell which will be dealing in the African continent.

Comverse had some major deals in the last fiscal with companies like Bell
Mobility and tigo. The company also helped NetComm to become first mobile
operator to offer Visual Voicemail on Sony Ericsson handsets.

Innovation

OnMobile ring back tones (RBT) platform was extremely successful, with over 250
mn song downloads in CY 2009, a 55% growth over the previous year. Innovations
in RBT such as reverse RBT (where the caller can set the song that he/she wants
to hear, rather than the tune of the called party) and social RBT (which
integrates social networking with RBT) also generated a lot of interest in the
RBT offerings.

On the data side, it offered social address book, which converts the user's
hitherto static address book to a dynamic, primary point of access for receiving
and sharing updates on web based social networking sites as well. Subscriber
uptake was also driven by MSearch, which simplified content discovery and
therefore, made the 'long tail' of music content easily accessible and thereby
increased usage.

Comverse has some popular services like ONE Billing and Active Customer
Management, mobile Internet HUB provide Multi-Dimensional Policy Solution,
real-time monitoring and tracking services. The company has in its portfolio
mobile Internet HUB's 'Smart' traffic management adds Deep Packet Inspection
(DPI) upgrade and hosts IP communications helping operators exploit new business
models.

Comviva also announced the global launch of usage and retention solutions. It
helps operators enhance their revenues by leveraging insights that drive usage.
The company also launched in this fiscal, the first ever 'one click' online
gaming solution. 'No download' gaming is being hailed as one-of-its-kind
experience.

Telenity is working with operators to integrate location with mobile
marketing and social networking as well. Location gives an exciting opportunity
for marketers to reach out to targeted consumers, who are actually looking to
buy a product or a service. In addition, being a community based service, the
technology gives all segments of subscribers a great social networking
experience. Even a person with a $10 phone would be able to interact with
his/her buddies with a Google latitude like experience, thus integrating social
networking with location services.

Bay Talkitec is introducing next generation SDP platform which is both 2.5G
and 3G complaint and has a number of applications relevant for rural India such
as mobile education, weather forecasts, etc.

Kirusa during the last fiscal launched 'Call-n-Tweet' in the US and a few
Latin American countries like Bolivia, Dominican Republic and Peru.
'Call-n-Tweet' is a solution that enables Twitter users to post voice tweets
(short audio snippets) and text tweets via mobile to update their Twitter
status. Users also have the option to share and listen to the voice and text
tweets on mobile or desktop. The company also added new revenue enhancing
features to our voice SMS platform, and carriers who have implemented these are
seeing voice SMS traffic growing exponentially.

Netxcell has built two new divisions to its revenue pie over the past few
years ie, Enterprise VAS (Bulk SMS + Voice + USSD Push) and 3G products like
video streaming/mobile advertising/cell broadcasting and professional services.
The company has already tested it in international markets.

Netxcell also launched CBC (cell broadcasting) and video streaming solution,
ICM and m-infinity to have revenue gains. All other products were addressed
keeping the future in view like mobile advertisement is a huge growth area and
with 3G on the anvil, the video streaming server can serve service providers and
media companies.

Flytxt, has enhanced the capabilities of its mobile marketing platform Neon
by sprucing up marketing agility and effectiveness. Flytxt is already providing
services to Reliance communications covering around 65 mn subscribers.

Hot Trend

With the continuous erosion of voice revenues, and 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 will
prove to be happening. Apart from this, location based services, advertising
solutions, personalized applications are other services that will rule the
roost. Overall, the Indian VAS industry today is dominated by three themes-music
and entertainment, search and discovery, and social networking.

With 3G services, the VAS industry is expected to increase its share
manifold. It will enable a full mobile Internet experience, so that all the
things that people do on high-speed Internet networks, can now be done over the
mobile. 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.

According to ABI Research, the market for mobile marketing and advertising is
expected to touch $24 bn by 2013 globally, while conservative estimates put the
Indian market at Rs 500 crore by 2012, from the present Rs 40 crore.

Challenges

For the VAS industry, challenges are in developing content for the typical
rural customer, leveraging on the network capabilities that current operators
have, and ensuring that new scope of work is defined, low cost handsets that are
3G compliant with large screen formats available and of course, the challenge of
who owns the customer and hence who will invest in educating the customer
remains a major challenge which has not been addressed by the community at all.

Consumers today are more from the prepaid segment which comprises of more
than 50% subscribers whose prepaid balance is less than Rs 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.

Outlook

Increased focus on VAS by operators and the encouraging uptake from the
consumer side for innovative solutions that improve their mobile experience,
will continue to drive the growth of the VAS market. At OnMobile, the focus is
on the development of the mobile ecosystem not just by creating new solutions,
but also the OnMobile Developer Network-an opportunity for developers to
leverage OnMobile's expertise and platform to take their ideas to the market.

Additionally, 3G will also drive availability of new services. Consumers will
experience three significant benefits with 3G-on-demand access to content,
higher speeds and more variety of multimedia content. For example, if you take
cricket, 3G will enable consumers to get match updates much faster, and the
content will include video, etc.

It is expected that once the 3G spectrum becomes available in India, about
275 mn Indian subscribers will use 3G based services, and the number of 3G
enabled handsets will reach close to 395 mn by the end of 2013. Apart from basic
wireless services, there is an enormous potential for various value added
services.

Archana Singh

archanasi@cybermedia.co.in