VAS: The Growth Catalyst

The Indian value added services industry is a curious case in the entire Indian telecom space. A country that boasts of having more than 900 mn customers out of a 1.2 bn strong population on its telecom network, has so far failed to leverage on the huge demand of added applications for their consumers. It still seems that the entire ecosystem of the Indian telecom industry works in silos. Instead of considering the VAS players as a catalyst for growth of the entire industry, they have been treated as 'lesser partners' in the whole business.

The Indian VAS industry that is estimated to reach $15 bn by 2015, currently contributes only around 15% to the operators' total revenue. It's because traditionally the Indian market has been voice centric and the operators' prime focus remains on acquiring more customers. Even after reaching a mature stage in mobile services with data centric services like 3G and 4G on a roll, the uptake of VAS is still poor.

Though the individual VAS players have been doing their bit and bringing innovations to the table, a lot is still awaited. With the increase in data consumption by the users, the stakeholders of the Indian telecom industry comprising operators, VAS players, and device manufacturers need to work in tandem to see the industry grow. Services like social media apps, m-commerce, m-health, m-education or m-entertainment have to be strengthened and made more interactive in order to enable consumers extract most out of their handsets.

Social networking has been a major factor in data services' take off. In addition to Facebook and Twitter, some local social networking sites like QQ and Sina Wiebo in China and Vkontakte in Russia have been very successful. Social networking is still a more urban elite class phenomenon in emerging markets. However its success can be replicated in rural areas and among low-end consumers if social networking applications are made available on low-end phones. And if affordable data plans open the way for more low income subscribers to start using such applications.

The World Bank estimates that in 2010 about $440 bn moved across international borders in the form of remittances, typically as person-to-person payments. In the past, most remittances have been handled by banks or international money transfer organizations like Western Union. Transactional costs have been high, the current global average is 8.6% of remittance value, which means there is a $38 bn global business in remittance processing. New entrants into the market including mobile operators and infrastructure providers offer some advantages to senders and receivers of remittances and are beginning to capture some of the business even as they are transforming it. Nevertheless, the existing remittance ecosystem players provide critical services and are unlikely to give up their market position without a serious struggle.

But despite difficulties in implementing cross border remittance services, mobile operators in developing countries with high remittance flows cannot afford to ignore the revenue potential. For most mobile operators, partnerships with banks will be critical despite the impact on revenue potential.

Emerging Trends

Of late the Indian telecom space has started witnessing few unusual trends with respect to value added solutions offerings. Traditionally it used to be the operators who 'push' VAS solutions to customers, and were seen as an 'added' thing to their primary mobile communication services. But things have drastically changed in the last couple of years, more specifically, after the large scale adoption of smartphones. Operators these days are creating or offering varied range of compelling products in their bouquet and customers are buying those solutions on their own, without push or even intervention of the operators. “Subscriber pull is the new trend in India,” says Millind Pathak, vice president, Asia MU, Comviva. He says that has been the case in the developed markets where VAS offerings are not limited to operators only. “Consumers decide their need and just get it from the market,” he adds. “However operators should create such markets where there are too many choices for the consumer.”

The other trend that the industry sees these days is the operator's increasing focus on cutting cost without compromising on quality of consumer experience-by relying more on new technologies or solutions. For example, operators have shifted their focus on offering self care services wherein the user does not have to depend on the operator's intervention in getting his choice of services.

“With costs for customer care continuously rising, mobile operators are looking to self-service solutions to meet the diverse needs of their customers in a cost efficient manner, while simultaneously offering a compelling user experience,” says Pathak of Comviva.

Going with self care solutions benefit both the service provider as well as the consumer tremendously. For operators, it's a huge cost saving as it drives infrastructure consolidation by moving to a single self-care platform, which in turn reduces operators' investment in capex and opex. It also improves customer satisfaction levels by empowering customers with consistent, seamless account information across multiple channels. Operators enable a positive care experience, resulting in greater customer satisfaction and loyalty.

Besides, for operators this creates opportunities for revenue generation as a uniform view of customer usage patterns provides operators with opportunities to cross-sell and up-sell services and deliver a range of relevant promotions and offers.

Besides, for operators this creates opportunities for revenue generation as a uniform view of customer usage patterns provides operators with opportunities to cross-sell and up-sell services and deliver a range of relevant promotions and offers.

And for users, it's a great relief as the user can get the services-any kind-enquiry, activation, etc, without the operator's intervention.

The third trend is the time for consolidation. There are hundreds of players with scores of VAS offerings and the operators are spoilt for choices. “But this is not helping the operators in the long run,” explains Pathak. He says operators now want to work along with just a few partners whom they would like to have long term relations with. This means the smaller players with few VAS offerings have to come under big players as their partners and sell their products to these big players. “This helps operators in maintaining transparency and offer quality services to their customers,” Pathak adds.  

Challenges

The market has been vendor- and aggregator-led with operators not playing a large part except for opening access to their subscribers by allowing integration onto their discovery, fulfillment, and charging platforms.

The vendors on their part have primarily been focusing on the lift and shift approach towards service development, consequently only a few services have generated interest, pull and uptake by customers. They have little incentive for innovation as, given their low revenue shares, they have no room to invest in the future as compared to global vendors who have a share of 70-80%.

Of late the device ecosystem has opened up and higher capability feature phones and lower cost smartphones have reached the customer segments with relatively lesser spending power. Also the availability of the operating system and handset manufacturer application development ecosystem and app stores have begun to challenge the operator dominance of the ecosystem through customer and wallet ownership.

The regulator has also started taking cognizance of malpractices of unlawful activations and lack of consent before charging the subscriber, and has proposed tough measures to curb this menace. The investments in the 3G & 4G technology and spectrum assets have further compounded the need to drive innovation, uptake, and revenues to monetize the assets already on the ground so that the ecosystem continues to thrive and revenues and margins are protected.

The VAS industry in India has not done well because of its complete dependency on operators. Since the revenue is skewed in favor of the operator, this often creates resource challenges to improve service. “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 machine-to-machine applications,” says Praveen Rajpal, CEO of Handygo Technologies.

One of the biggest challenges the VAS industry is facing is the clarity of the policies laid down by the regulatory authorities. “Also, bandwidth offered by the operators do not allow high interactive and video based applications hence there are very few deployments of killer applications like online gaming and other video based applications,” says Jon He, CEO of Donjin Technologies. “However it is a matter of time before we see the full scale launch of 4G which will see a new set of applications being deployed by the VAS players,” he adds.

Enterprise MVAS

In the past five years the industry has seen the adoption and growth of mobile value added solutions like ringtones, games, chatting, news, cricket and wallpapers. They all have helped in increasing customer spends thus increasing the overall ARPU of mobile operators. But the industry has now stumbled upon a new phenomenon-VAS for enterprises. “If customers can be lured into using VAS, then why not enterprise customers,” asks Sunil Lavani, director enterprise sales, RIM India.

Enterprise MVAS has a crucial role to play in improving communication and collaboration within businesses. As an example, an MVAS provider can help bring together all the messaging platforms-email, SMS, BlackBerry Messenger Services, Twitter and Facebook feeds, voicemails, video conferencing, etc-spread across desktops, laptops, tablets, and smartphones into a unified messaging system. They can bring together contacts and calendars from varied sources into one central repository to ensure smoother and better communication and collaboration within an enterprise.

However, enterprises have been cautious about MVAS until recently because of unpredictable services. Nonetheless, amongst the biggest reasons why enterprises will now be keen to use MVAS is that network speed, availability, and reliability have improved considerably. Simultaneously, mobile access costs and handset costs are coming down, making MVAS an attractive proposition to explore. With the launch of 3G services in the country and anticipated 4G launches by various operators in a year's time, enterprise VAS is slated for a big leap in the near future.

In fact, serious enterprises are actively adopting what is called Unified Communication and Collaboration (UCC). Simply put, UCC spans voice communication, data, IP telephony, video conferencing, instant messaging, contact books, calendars, etc, unifying them for ease of use.

A global study called 2012 Economic Impact of SIP in the Enterprise recently released by Sonus Networks, a leader in SIP (Session Initiation Protocol used to control communication sessions), suggests that enterprises could make savings in million of dollars by implementing UCC infrastructure.

The study showed that knowledge workers could reduce productivity loss by 23%. Average savings, the study indicated, could be about $13,000 per year per knowledge worker. Those are the kind of MVAS services that enterprises want.

In fact, serious enterprises are actively adopting what is called Unified Communication and Collaboration (UCC). Simply put, UCC spans voice communication, data, IP telephony, video conferencing, instant messaging, contact books, calendars, etc, unifying them for ease of use.

A global study called 2012 Economic Impact of SIP in the Enterprise recently released by Sonus Networks, a leader in SIP (Session Initiation Protocol used to control communication sessions), suggests that enterprises could make savings in million of dollars by implementing UCC infrastructure.

The study showed that knowledge workers could reduce productivity loss by 23%. Average savings, the study indicated, could be about $13,000 per year per knowledge worker. Those are the kind of MVAS services that enterprises want.

The Smartphone Phenomenon

The consumption pattern of MVAS has changed dramatically in the last couple of years, since the adoption of smartphones by consumers. Users are no more confined to traditional applications like ringtones, jokes, cricket, etc, for their VAS needs. Users are now listening to music, clicking pictures, and becoming socially active on the online social media platform through their smartphones. Data consumption by the users of smartphones, though a small chunk in the overall pie of mobile users, has surpassed the data consumption by non-smartphone users. The movement towards bundled offerings of data, devices, and services is changing the dynamics and the consumption of VAS. Though the average revenue per user (ARPU) has declined over the years, the VAS APRUs have consistently increased, going up by 28% in the last one year. Currently it stands at 27% of the ARPU, according to IAMAI. However, the VAS market in India is still evolving.

Globally operators are facing challenges from the entire value chain including device manufacturers and operating system providers offering over-the-top services to end customer. Additionally, payment gateway providers are trying to take over the customers' wallet and get them out of the control of operators. India, on the other hand, has seen such moves fail with Nokia withdrawing its device based wallet and other such operator independent wallets seeing negligible penetration. The other real challenge operators are facing include monetization of their platform and network investments.

Since devices are not usually bundled with voice or data plans by the operator, there is high turnover in devices due to price wars between the low cost and traditional manufacturers. This has a huge impact on the way services are discovered and delivered on the device due to the presence of multiple standards and some of the low-cost devices not able to support diverse applications. Also, content repurposing, rendering, transcoding and DRM on these firmware and variants makes it technologically complex and expensive.

Outlook

The key trends and issues that will undergo change going into the future include pricing, introduction of service free products, and reorganization of the VAS business into separate entities outside of the operating companies or formation of a consortia to aggregate and monetize investments through bigger scale.

This will be further supplemented by increasing use of customer analytics to determine preferences and behavioral attributes linked to propensity to purchase a particular service, widening of the user base for mobile deals, and discounts couponing through increased local contextualization and widening of the content and user networks into self serving communities of users with proximity in preferences and attributes.

Pricing of VAS and data till now has been arbitrary with multiple step downs (where the customer is charged a lesser fee for renewal of a service based on prepaid balance availability) pushing down average realizations to half of the list price. Change is foreseen on this with operators looking to do demand elasticity based value pricing to maximize their top lines and profitability supplementing it with increased relevance and better engagement experience.

Handling customer complaints and servicing his requests on products contribute to 12% of VAS opex. Going forward, a lot of the VAS on operator platforms will be designed to be service free or set expectations of 'no servicing by operator' leading to increased profitability of the portfolio. This will be built on the lines of OTT app stores like Apple, android, and OVI.

The VAS business within the operator organization has a different need, construct, and performance metrics as compared to a traditional voice. Increasingly, these conflicts, along with VAS ceasing to be a competitive differentiation, will lead to operators hiving off and aggregating VAS businesses into separate entities (VASCO) like they have done with passive infrastructure (Tower Co) and have been planning to do with active and transport infrastructure (NETCO). This will include aggregating platform assets and sweating those more effectively.

Increased need to understand the context of the customer will drive investments into customer analytics and insight once the market has recovered from the current downside. This will drive contextualization of offerings to aligned to needs leading to increase in revenues per user on VAS.