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More than Calls - Operators strengthen VAS portfolios to increase revenues

July 15, 2009

Oer the past four years, the Indian elecom industry has realised the mportance of mobile value-added services (MVAS). Propelled by the need for service differentiation, operators are implementing new kinds of services in order to satisfy growing demand from Indian consumers and explore alternative revenue generating streams.

VAS is increasingly becoming a growth area that will help operators maximise their revenue and grow ARPUs. Currently, MVAS accounts for up to 10 per cent of an operator's revenue, and this figure is expected to reach 18 per cent by 2010. VAS offerings are slated to greatly improve with the forthcoming 3G launch.

To increase ARPUs, reduce churn and differentiate themselves from their competitors, mobile operators are strengthening their existing VAS portfolios and have come up with a host of new services targeted at different segments of their subscriber base.

The key challenge, however, is to make the services available at a low price to end-users, while at the same time, improving service quality and user experience. In addition, local responsiveness and the ability to personalise and customise services for end-users will be critical for successful mobile uptake in the country.

Bharti Airtel

Having achieved an industry first by partnering with Ericsson and Nokia Siemens Networks (NSN) to manage its networks in 2004, and then with IBM for its IT management, the company set yet another precedent in June this year by becoming the first telecom operator in the world to sign a managed services agreement for its VAS portfolio.

The company has signed a three-year managed services deal with Comviva, a provider of integrated VAS solutions for mobile operators in emerging markets, to manage more than 2,000 of Airtel's VAS nodes across India. Comviva is already managing close to 30 services for Airtel Sri Lanka.

This agreement clearly reiterates the company's focus on VAS, which currently accounts for 10 per cent of its revenue. In fact, VAS's contribution to Airtel's coffers grew to 10 per cent of ARPU in the second quarter of 2009. However, the contribution of data services increased marginally.

Bharti Airtel expects this to go up substantially with the introduction of 3G services and a stronger focus on rural VAS.The rural subscriber base accounts for about 55 per cent of the company's 100 million customer base. The company has recently introduced "Krishi Labh" a service that provides commodity prices for mandis located within a radius of 100 km from farmers. Last year, the company started IFFCO Kisan Sanchar Limited that offers products and services specifically designed for farmers.

While music and SMS currently constitute a significant part of the company's VAS revenue, going forward, Airtel intends to capitalise on the opportunities in mobile commerce and data markets, and is expecting higher data usage in the rural markets. The company also plans to work on banking solutions and target the 80 per cent unbanked population in India with options like money transfers through mobiles. It is currently awaiting government approval on these initiatives.

Bharti Airtel is reportedly ready with its service development platform (SDP) that it has developed with IBM at an investment of $100 million. The SDP is not only expected to reduce time-to-market by 90 per cent, but will also enable VAS service providers to develop and offer content, messaging and applications services to all Airtel mobile, landline and broadband subscribers. The SDP will also help in utilisingthe mobile advertising medium. Clearly, the company is betting big on VAS and expects it to be a strong revenue generator in the near future.

Vodafone Essar

Vodafone intends to leverage its global expertise in India and VAS is clearly an important part of the company's growth strategy. It is now targeting the urban youth with innovative VAS offerings. The company has recently launched Zoozoo, its new mascot especially created to highlight the operator's VAS portfolio. The company has, in the past six months, introduced a number of new services including Portfolio Tracker, which provides the latest financial updates and live stock rates and voice SMS.

Having rolled out services in six new circles in December 2008, the company is also planning for a bigger rural push and has strengthened its VAS portfolio for this segment. For instance, the company introduced the Vodafone Magic Box in November 2007 to address the challenge of handset affordability. Under the offer, handsets were bundled with easy access to the company's VAS platform in partnership with distributors and associates. The company has also started taking motor vans into villages, and educating rural consumers on the ways in which mobility can improve their life.

Currently, VAS accounts for 10 per cent of Vodafone India's revenues. NonSMS services account for more than half of this revenue.

The operator, which has been working with VAS provider OnMobile, has recently signed an agreement with it for VAS delivery in emerging markets like Africa, Latin America and India.

Reliance Communications

Reliance Communications (RCOM), the country's second largest mobile operator, already has a robust VAS portfolio which constitutes an important part of its growth strategy.

The operator, which offers community applications and user-generated content on its phones through Reliance World, is also focusing on content sharing, collaborating and connecting, bulk online bookings, and m-commerce, apart from other innovations on the mobile.

For instance, it has tied up with Reliance Energy to offer electricity bill payment options on the mobile.

Given that a key hurdle impeding VAS uptake is the pricing model used currently, RCOM now intends to launch valueadded services such as caller tunes, news alerts and internet surfing for as little as Re 1 a day, rather than for a monthly subscription. The company is expecting about 15-20 per cent of its revenues to come from VAS over the next three years.

RCOM, which has already tested the "sachet pricing" model with gaming, is now extending it to other value-added services. The biggest beneficiaries of the sachet pricing plan are likely to be prepaid subscribers who account for nearly 85 per cent of the telecom operator's wireless subscriber base.

RCOM is in the process of rolling out a series of initiatives including live streaming of cricket matches and Formula One car races on mobile phones, and hopes to reach a wider audience for VAS by offering customers more price flexibility in using these services.

With rural consumers accounting for the next level of growth, the company has recently formed a joint venture with the government-promoted Krishak Bharati Cooperative Limited, for retailing customised telecom products and farmer-specific VAS in rural India.

In order to leverage its VAS revenues through mobile marketing, the company has implemented an integrated mobile marketing software platform called Neon.Neon is a product from Flytxt, a mobile advertising and marketing technology provider, which provides a mobile customer relationship management database and all the mobile applications required to conduct large-scale mobile customer engagement programmes.

With this system in place, the operator intends to reach out to a huge customer base through targeted marketing.

Idea Cellular

The company has strengthened its focus on VAS as it was initially not very strong in this space. Its efforts have paid off as the VAS component of its ARPU has witnessed a substantial increase to 9.6 per cent as of March 2009, up from 8.2 per cent in March 2008. While the company has witnessed increased usage of SMS and mobile music, it has also made more intelligent use of segmentation and tariff reforms to tap this potential market.

It has recently tied up with NSN to upgrade its VAS network across 22 circles in the country, enabling subscribers to take advantage of mobile data services and use multimedia messaging, email, web browsing, online music and other innovative VAS offerings.

The operator has also launched several new services in the market over the past few months, including a stock search and subscription service in Punjab. Earlier in the year, the company became the first operator to make a TV reality show available on the mobile, in association with MTV. With reality shows gaining popularity, this service added to the operator's repertoire of innovative offerings.

Other operators

VAS is driving the growth strategy of other smaller telecom operators as well. For instance, since its inception, Aircel has used VAS as its core strategy. According to officials at the company, the future growth is slated to be in this space. Loop Telecom too has a strong focus on VAS, which currently accounts for as much as about 13 per cent of the operator's revenues. Over 8 per cent of this revenue is from non-SMS services.

As the new operators roll out services and competition intensifies, VAS will be a key differentiating factor. And with the eventual launch of 3G services, operators with a strong position in the VAS space will have an edge. Clearly, value-added services seem to be the new cash cow as far as telecom operators are concerned.


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