VAS: A Defining Period

Until recently, the telecommunications industry was revolutionized by the rapid penetration of 'Mobile', and the next level of growth-cum-revolution is undoubtedly marked by the value-added services (VAS) market. According to a report released by PricewaterhouseCoopers (PwC) in April 2011, the total revenue from VAS is expected to cross `200 bn ($4.49 bn) by 2015. There are a lot of factors that are instrumental in the growth of VAS; let us take a look at the growth drivers that have boosted this highly potential market in the communications world. The growth drivers of VAS industry from the supply-side include dwindling average revenue per user (ARPUs), increasing mobile tele-density, and the introduction of third-generation (3G) applications. From the demand perspective, VAS drivers include rising consumer demand for VAS applications, growing medium for advertising, and a growing rural market.

Declining ARPU in Voice Market

Voice market has shrinked considerably. Though some operators, including airtel, Reliance, Tata Teleservices, have recently hiked tariffs, yet regaining the dwindling ARPUs is not an easy task. India has the lowest tariff rates in the world. Therefore, the entire telecommunications eco-system comprising of operators, mobile application developers, vendors, aggregators, technology enabler are betting big on non-voice market, ie, VAS market. This non-voice market has brought in tremendous transition in consumer's behavior, operators' offerings, and more importantly in the facilitation of generating newer revenue streams.

Mobile Penetration

According to the Telecom Regulatory Authority of India (Trai), as on July 2011 the tele-density in India was 74.44% with a total subscriber base of 892.55 mn inclusive of wireless and landline. Rural subscription has increased from 298.05 mn to 301.06 mn. Whereas as per the report, the wireless subscribers are 601.73 mn in July 2011. A large population, low telephony penetration levels, and a rise in consumer spending power have helped make India the fastest growing telecom market in the world.

By 2013, industry analysts anticipate to have 1.159 bn mobile subscribers. Also as the fastest growing telecommunications market in the world, the industry is expected to reach a size of `344,921 crore ($76.92 bn) by 2012 at a growth rate of over 26%. By 2012, it would generate employment opportunities for about 10 mn people. Hence, isn't it quite natural for telcos to encash on this immensely mobile-penetrated India by fueling the growth of MVAS? Therefore, Mobile VAS has become a key driver to accelerate telecom growth to drive up their ARPU in India; there is continuous invention in mobile technologies, services, and applications to add immense value to MVAS market.

Launch of 3G Services

Though 3G is yet to gain traction and increase ARPUs in India, since its launch in November 2009, 3G will truly drive VAS market. 3G services are synonymous with VAS. Once 3G services pick up there would be no looking back for telcos. The launch of 3G services in India opened up a plethora of opportunities for VAS players. “With 3G services, operators are able to offer richer services such as mobile internet and video as there is greater bandwidth available to deliver an enhanced service experience. While 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. On the whole, subscribers will benefit from a superior service experience for both voice and data services,” says Milind Pathak, vice president, South Asia, Comviva.

3G technology would drive the next round of sustainable growth for the Indian market through convergence of entertainment, infotainment, and voice communications into single device. “We believe that 3G will make wireless broadband ubiquitous and positively contribute towards socioeconomic development of the country,” states Jagdish Mitra, CEO, CanvasM, a subsidiary of Tech Mahindra. Navnit Chachan, director, engineering and technology, Tanla Solutions says, “The Indian 3G subscriber base is expected to hit 90 mn by 2013, accounting for 12% of the overall wireless-user base, according to FICCI. By 2013, 3G service revenues are expected to generate `72,680 crore, accounting for a share of 46% in overall wireless service revenue.”

3G deployments will definitely increase demand for a single-converged device and consumer demands will lead them towards looking at their handset for all solutions. The handset will not only be a navigator, camera, music system, and radio but it will also enable livelihood-changing services like mobile banking and m-commerce. User generated content, social networking, financial services, and rural VAS services such as commodity pricing also hold huge potential. “While operators will continue to offer existing services, such as ringback tones, messaging, and infotainment services, there will be the opportunity to offer services that require more video or image based content, such as telemedicine, wireless teleconferencing, and e-learning. On the whole, subscribers will benefit from a superior service experience for both voice and data services,” points out Milind Pathak.

It is not only the 3G services but Long Term Evolution (LTE) and NGN technologies that will further accentuate the importance of VAS for mobile operators as consumer's dependency on such services would height.

Demanding Consumers

Consumers are gravitating towards choices, they no longer refrained from buying things that are just a necessity. There is a transition towards mobile lifestyle. These days consumers are craving for rich communication services on mobile. Getting information at ease, real-time communication, accessibility while on move have influenced consumers to demand rich applications. VAS applications also facilitates in satiating their personal as well as business needs anywhere and anytime. Disposable income and the pleasure of these experiences have complemented to the changing consumer demands.

Consumers desire more from their mobile phones rather than basic voice telephony and messaging services. While the youth demand for entertainment related services and social networking, whereas other age group prefer utility services such as location based services, mobile commerce, local content services, etc.

A research recently conducted by eDigitalResearch and Portaltech has revealed that 48% of smartphone users are now regularly shopping using the devices. Within a span of 9 months this increased by 13%. Shopping via smartphone web browsers has increased by 5.8%. The report also identified that researching and browsing via smartphone web browsers has significantly increased by 14.3%. Increasing disposable incomes have boosted willingness to spend on services that bring value among the upwardly mobile citizens today, but network coverage and customer service are the uncompromising needs.

A Growing Medium for Advertising

A rapidly growing medium of advertising, advertisers and media owners are increasingly taking account of a bigger and growing mobile market in India. In fact, mobile media along with internet is overtaking all traditional media such as television, radio, newspaper, in-store advertising, and street advertising. Various advertising campaigns of brands have been launched through mobile media. Considered as an effective means of promotion, the main measurements of mobile advertising are impressions and click through rates. Bulk SMS, WAP, Voice Portal, Bluetooth, Gaming, Contest Hosting, subscription based alerts, Downloads-ringtones and wallpapers, sponsorship of zones, etc, are some commonly practiced forms of mobile advertising. Mobile Ads are advantageous over other advertising mediums as the brand messages reach out to customers in a discreet manner.

Growth in Rural Market

The urban mobile market is on the verge of attaining saturation. Thus, telcos are considering rural market as the key to growth strategy. The expansion of mobile subscribers' base in rural areas presents a great opportunity to the MVAS industry to grow. However VAS providers should hit the rural segment with relevant infotainment services such as economic data and agriculture related information. The content has to be delivered in a medium that is easily reachable and usable.

As rural India constitutes a significant part of subscriber base, operators are trying to gain a foothold in these markets. This is evident by some of the initiatives by airtel, Reliance Communications, and IDEA Cellular who have partnered with IFFCO, Reuters Market Light services, etc, for services related to agriculture, weather, and so on. Some VAS for rural masses are available in 10 languages, providing 'mandi bhav' (market rates), health and weather info, and services like regional CRBT. These services are available at `15 per month, while the VAS services are available at higher price in urban areas. “Since the next wave of growth is expected from this segment, VAS vendors will be focusing more on providing new services to cater to this segment. These applications in VAS are reducing the digital divide between rural and urban sectors. IVR systems in local language would be more popular in the rural scenario. Social networking, blogging, browsing, and streaming on mobiles will see an exponential increase. In Q1FY10, around 14.5 mn users accessed social networking sites via applications on mobile and around 30 mn via mobile web browsers. Out of the total users, Orkut and Facebook users were 14.4 mn and 8 mn, respectively. The main drivers are the tie-ups between operators and social networking sites, availability of cheaper smart phones, popularity of social networking sites, innovative pricing model like pay per site and network coverage even in rural areas,” shares GD Singh. “The next wave of growth in subscriptions will come from semi-urban and rural areas. Today the penetration of mobile phones in urban areas is already 100%, while in rural areas it is only 23%,” added Navnit Chachan.

New Revenue Streams-oriented Drivers

The ubiquitous nature of mobile upholds a promising socio-economic development of the country; parallelly it also ensures revenue to the entire tele-ecosystem such as operators, aggregators, content providers, technology enablers, and application service providers. These new revenue streams generating drivers include m-commerce, m-health, m-agriculture, m-governance, m-gaming, m-entertainment, and m-advertising.

• M-commerce

Mobile commerce assures greater efficiency and higher fruitfulness, it also promises exceptional business market potential. Though m-commerce is gaining more popularity than e-commerce, it is yet to gain mass acceptance due to security issues. M-commerce has forayed into different verticals including finance, services industry, retail, information technology services; it is widely popular in retail sector than financial services. According to ABI Research report, shoppers are expected to spend about $119 bn on goods and services purchased via mobile phones by 2015. This number represents about 8% of the total e-commerce market. Though it is in the initial stage, the future of m-commerce seems extremely bright because several experiments are going on to introduce the upgraded version of mobile likely to emerged with the evolution of 4G mobile technology. It can be further expanded into all the fields, which would help human life.

• M-advertising/M-marketing

Mobile advertising is another source of revenue for the operator. At present, it is approximately $25 mn and is expected to grow to $56.6 mn in 2011. Advertising, which is majorly SMS services and to generate revenue and arrest falling ARPUs. The latest trend among operators and handset vendors is to have their own mobile application stores, owing to their popularity and revenue earning potential. “A rapidly growing mobile subscriber base has significant potential for mobile advertising. Currently, the mobile advertising industry is dominated by SMS based advertising, which commands a one-third market share,” says Jagadish Mitra. An evolving set of users and innovative content offerings will open up new areas in mobile advertising, eg, display advertisements and location based advertisements. However in a market dominated by prepaid mobile subscribers, the success of mobile advertising will depend on the availability of accurate customer data.

• M-agriculture

Thanks to the tele-density and affordable mobile telephony service, rural masses have realized the potential of mobile telephony in boosting socio-economic opportunities and the ease of sharing information and knowledge effectively. Mobile communications are helping in bridging the rural digital divide. Telcos have also realized the need and growing interest in mobile information services for farmers and hence it has turned out to be a great mobile application space. Notwithstanding, the telecom ecosystem has to make improvements in supporting infrastructure and capacity building amongst farmers to use the information. Consider some of the m-agriculture initiatives that are running successfully, such as Fisher Friend Mobile Advisory (FFMA) project developed by MS Swaminathan Research Foundation (MSSRF). MSSRF is very active in Tamil Nadu and Puducherry. It is working in association with Qualcomm, Tata Teleservices, and Astute Technology. It provides services on wave height, wind speed and direction, potential fishing zones, news alerts, government schemes in local languages like Tamil. ITC's e-choupal provides agri-related information across 9 states, and it covers around 40,000 villages. mKrishi, TCS Mobile Agro Advisory System, has evolved from the efforts of TCS Innovation Labs in Mumbai. Through mKrishi, farmers can send their queries to a remote expert by their mobile CDMA handsets. Its services include weather forecasting, other macro-economic factors, etc. Besides these, Intuit has an application to provide mandi prices, IFFCO Kisan Sanchar provides mobile information services with Airtel.

• M-gaming

Gartner anticipated that within the gaming software market, mobile gaming would experience the largest growth opportunity with its share growing from 15% in 2010 to 20% in 2015. It also estimates that worldwide spending on the gaming ecosystem would exceed $74 bn in 2011, up 10.4% from 2010 spending of $67 bn. By 2015, spending will reach $112 bn. The ever-growing youth subscriber base in India is going to contribute significantly to the growth of mobile gaming in India. This coupled with handset manufacturer's re-evaluating their strategy (for example, Nokia recently announced the overhaul of its India strategy positioning itself as a complete solution provider, LG is pushing out low-cost motion sensor gaming handsets) is going to see a huge contribution from this section to the overall VAS pie. According to an observation by Djuzz, mobile gaming in India is on the rise. Djuzz is a free mobile gaming portal from BuzzCity. BuzzCity says that India continued to dominate its charts for the most games downloaded with 4 mn downloads in November 2010. “3G will give an additional boost to the mobile gaming industry, with interactive games, multi-player gaming, and mobile gaming contests being introduced,” says GD Singh.

• M-entertainment

M-entertainment is a key revenue driver for VAS market. Tavess, the research firm has forecasted that the mobile entertainment industry in India would be worth $4.9 bn in 2015, up from $1.2 bn in 2009 and it is growing at a compound annual growth rate (CAGR) of 26%. Due to the huge potential of mobile entertainment, some VAS providers are focusing more on the strengths like direct-to-consumer (D2C) mobile content. ROK Entertainment Group has launched TINY TV across India in partnership with BSNL priced at `150 per month, TINY TV is a subscription based mobile TV service in the country, to be streamed over 2.5G networks. Currently, 3-4% of mobile VAS revenues are driven by entertainment services like music and gaming on mobile handsets. A number of internet giants are also capitalizing on mobile entertainment to gain access to a captive user. As far as genres of entertainment are concerned, music contributes the largest percentage followed by imagery, gaming, and celebrities within the VAS segment. There are several reasons for this, low bandwidth issues being the most significant. Due to restricted bandwidth, streaming and downloads becomes a challenge.

Other Notable Drivers

Device penetration, seamless connectivity, innovative content, data tariffs, data speed, handset compatibility, and technology convergence will enhance the experience of VAS.

Roadblocks

Despite its potential both in terms of customer satisfaction and revenue generation to the telecom industry, VAS market has to crawl through hurdles to reach its destination. The VAS market is very thinly regulated and also not clearly defined; factors believe at times create challenges in the growth of mVAS.

urthermore, bifurcation in mobile VAS is not clear and thus can limit what we have to offer to the national growth agenda. Operators' revenue shares and infrastructure bandwidth have also been some challenges in the VAS segment.

“Though we are optimistic about the future of this segment as in the past years it has only but grown. In the future as it has already been observed, demand for new applications beyond the ringback tone and sms have already increased immensely. Services like mobile money, Apps and Data will drive the operators business in the next few years, which affirms our belief of a bright VAS market,” feels Milind Pathak.

A few stumbling blocks include the availability of 5 MHz of spectrum to support bandwidth-hungry applications, uneven revenue distribution, dearth of innovative applications, unavailability of content based VAS applications, paucity of business intelligence (BI) tools. The growth in the VAS market is expected to be driven by the relevance of content for different consumer groups. Areas such as information and transactional VAS, which provide enhanced value to rural customers, continue to be under penetrated. Focusing on content such as voice SMS, tracking services, and local information services is likely to expand the market for new customer segments. In addition, regional language entertainment offerings should also bring in new customers. Segmentation and targeting of customers is critical for delivering relevant MVAS, especially in view of the vast demographics of the mobile subscriber base in India.

Among all these, revenue sharing model is a major concern in the value chain. Jagdish Mitra points out, “Mobile operators, who have direct control over their customer touch points, garner around 60-70% of VAS revenue from these, while content owners and aggregators get a relatively small percentage share. This low share of revenue in the VAS value chain is a disincentive for content owners who wish to invest in mobile-specific content. Going forward, telecom operators may have to cede partial control over the VAS value chain and allow content owners to offer differentiated offerings to telecom subscribers due to the intense pressure on them to retain subscribers. In addition, intense competition in the content aggregation space is expected to lead to market consolidation and provide aggregators with greater bargaining power, which is likely to earn them a higher revenue share. This is expected to result in a more equal distribution of revenue, and provide incentives to develop innovative offerings for all the players in the value chain.” Navnit Chachan states, “Around 5-10% of revenue is shared by content providers, 10-15% of revenue goes to aggregators, technology enablers share 10-20 % of revenue, mobile operators grab lion's share of the VAS market, ie, around 60-80% of the revenue.” While Milind Pathak states, “At present, all the content gets routed through telcos but with the RBI's recent directive on financial inclusion that is pushing banks and other financial institutions to provide services like mobile wallet, the scales could be tilted towards the VAS companies. Currently Indian telcos keep major share of the revenues arising from VAS services. Revenue sharing in India tends to be lower from revenue sharing percentage in international markets, although in India we have much larger volume of usage in comparison. While for premium or high-usage services such as ringback tones, etc, a lower percentage of share works well, but for new innovative services being deployed for the first time, there is a potential for revenue share to be higher.”

In terms of mobile VAS, India has already entered into an exciting times and 3G roll out has just further complemented the growth. Mobile operators will no longer be able to exist with only voice based solutions. Once the bottlenecks are set in place, VAS market would not look back.

Malini N
malinin@cybermedia.co.in