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Many Options - More customers, new technologies drive VAS uptake

July 15, 2009

As operators increase focus on value-added sevices (VAS) and service providers come up with new and innovative offerings, this industry is poised to grow from strength to strength. tele.net spoke to key players in this segment on the main growth drivers, the organisations' growth plans and the issues and challenges that need to be addressed...

How has the VAS industry evolved over the past two years? Which areas have witnessed higher uptake?

S. Dharmapuri
While vendors are toying with a variety of services, the key areas witnessing growth are traditional VAS such as SMSand voice-based applications. These continue to be the primary revenue drivers. Mobile gaming is among the new services that have the potential to become key revenue generators. The maximum volume growth is expected in entertainment-related services.

Vineet Kaul
We have witnessed a lot of action in the VAS space with many entrants, comprising both short-term and long-term players.Entertainment-based VAS like caller ringback tones, music portals and subscription services have done well. Products focused on the rural areas and on education have also witnessed a degree of success. Different business models based on end-user pricing are being successfully implemented.

Jagdish Mitra
The MVAS industry has evolved and witnessed a phase of high development with year-on-year growth of 100 per cent in the past two years. This pace of growth is likely to continue.

Emerging as a dynamic business segment, this domain has seen a major uptake of entertainment-based solutions, which include data, voice and video services. The emergence of m-commerce solutions will enable the use of all types of commerce applications on a wide variety of mediums like SMS, IVR, MMS, web, WAP and TV, thereby increasing the scope for greater uptake of these applications.

Milind Pathak
Over the past two years, the VAS industry has seen noteworthy changes in content, user uptake levels and in terms of industry perception. The services that have made a mark have been categorised into two sections –­ entertainmentand informationand infotainment-based VAS.

Entertainment-based services have been the key growth drivers in the VAS segment and will continue to be so. Music is the biggest component of entertainment VAS. Other popular entertainment offerings are dating and chatting services.Gaming and mobile social networking are catching up in a big way. Going forward, it will be extremely important to package and customise the offerings based on target user demands and also market them aggressively to increase their growth.

Informationand infotainment-based services like cricket, news, astrology, stock updates and reality show contests have emerged as services for the masses. They do not depend much on handset or service (such as GPRS) compatibility and their penetration level amongst mobile users viSà-vis other services is higher. Cricket and astrology services have clearly been leaders in this segment, and are being taken up in all modes –­ SMS, IVR and WAP.

These services have a tremendous scope for growth. Information-based services will no longer be restricted to the regular alerts like stock updates, bank account information, travel information, etc. A combination of useful informationand entertainment-based services will emerge as an important revenue generator in the future. Users are yet to discover the utilities of such services. For example, networking communities, mobile advertising, location-based and m-commerce services, all have great growth opportunities.

What have been the key growth drivers in this space? How is the market likely to evolve with the launch of 3G services andthe increased focus on rural areas?

S. Dharmapuri
Looking at the competition and the kind of scaling up happening in the operator space, operators are focusing more on subscriber acquisitions. However, with declining revenues, they want a medium of service that can contribute to their overall revenue. According to market indications, VAS accounts for about 20 per cent of operators' revenues. Operators are looking at increasing this to about 25 per cent.

There is clearly a huge scope for VAS to grow. The combined revenue of the industry stands at about $850 billion, of which 70 per cent is accounted for by voice and commoditised services. In India, while VAS uptake is still not very high, we intend to help operators drive growth in this segment.

At present, only Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited have started 3G services in the country. We are now waiting for the private operators to roll out 3G services. However, it seems that we will have to wait for some time before VAS can be launched on the 3G platform.Subscriber acquisition on 3G will take time since it is an expensive technology.

Nonetheless, there are a number of VAS applications that will become feasible once 3G services are rolled out. One is video calling, wherein users can make a video call to an application and select a particular service of interest to them. Two users can also communicate over a video call if both of them have 3G connections.Subscribers can also subscribe to video ringback tones. In the future, it may be possible to conduct meetings from home, thus eliminating the need to travel. But it will take time for 3G to evolve.

Rural VAS offers a clear possibility for growth. There can be many interesting and innovative services targeted specifically at the rural consumer. One such service is rural education, wherein people can learn English using regional languages as the platform. We have also started offering a service that provides online mandi prices from 2,200 mandis to farmers, based on which they can decide the selling price for their produce. There are also various health-related and entertainment-based services catering specifically to consumers in the rural areas.

Vineet Kaul
Growth has come in two ways –­ net subscriber additions and increased focus on VAS by both operators and VAS providers.Addressing long tail customers through different business models has also added to growth. While 3G will definitely boost data services, the extent to which the technology will push demand remains to be seen and would greatly depend on how operators utilise 3G spectrum. Video services would definitely be implemented. But their uptake would depend on the users' experience with such services.

Jagdish Mitra
The following are the key growth drivers in this space:

  • The availability of more services and applications on the mobile.
  • Increasing use of the digitised mobile route for effective solutions/transactions by financial institutions.
  • Reduced role of the "middleman" in providing VAS solutions, especially mcommerce solutions, thus leading to efficiency in markets.
  • Evolution of a transparent and equitable revenue-sharing industry.
  • Push for faster rollout/adoption of supporting infrastructure in rural areas, since the rural market in India holds a huge potential for deployment of MVAS services. The rural subscriber base is expected to grow at a compounded annual growth rate (CAGR) of 85 per cent in the coming years. The next-generation technologies will provide a single platform to provide end-to-end services for the subscriber.

    3G services will also lead to the proliferation of MVAS applications, mobile internet and multimedia content, thus providing an opportunity to enhance ad revenues in this segment.

    In the present scenario, while there are not many services dependent on data speeds, 3G will facilitate faster downloads, voice connectivity and video-ondemand. In rural areas, 3G will also enable services like education and halthcare, and will enable the creation of a virtual marketplace.

    Milind Pathak
    In the VAS space, we see a strong trend in the evolution of business models in the content business with a stronger focus on subscription-based and sachet-based pricing models and on search ads. There has also been a greater focus on VAS promotions and customer engagement, and on educating customers for better adoption of non-voice services.

    Specific offerings customised for the low-income segments (the so-called "bottom of the pyramid") are being developed with a focus on inclusive VAS growth. VAS ecosystem development is also favouring consumer adoption of mobile internet, and with the advent of 3G and faster downloading capabilities, we expect to see VAS adoption shoot up in the near future.

    Some of the key requirements in the VAS category of voice and IVR services include increasing IVR penetration supported by continuous innovation in services, billing and content discovery. In the data access and email category, 3G data access can be supported by flat-rate data plans and better device-service integration. In future, video-based services such as video-on-demand and mobile TV are expected to be introduced, thus leveraging the higher speeds offered by 3G.

    Some of the services that would be driving growth in this space include SMS and IVR-based services, music downloads, internet applications, search and locationbased services. While mobile music uptake will increase with better bandwidths, migration to 3G will result in increased data ARPUs. Local content should also witness a rise in uptake. IVR will also see largescale adoption, especially in rural areas.

    What is your organisation's strategy for growth? Which services form the focus of your operations?

    S. Dharmapuri
    Our growth strategy basically involves increasing penetration within existing accounts, putting together a service assurance strategy that will ensure that users can subscribe to a service and use it, launching new services and increasing the adoption of current and live services. For instance, we have recently launched full-track music services for Vodafone Essar and are in talks with other operators for the same. We are also working actively on developing new product offerings and are expanding geographically. We have recently set up an office in Latin America and are clearly on a rapid-growth trajectory.

    Vineet Kaul
    We look at the entire value chain for our growth: platform cloud, applications and content. Our core focus area will be to develop highly usable applications and design business models that cater to different user segments. Having said that, we will continue to invest in the platform cloud as we have traditionally had deep expertise in and unique products to run on those platforms. As far as content goes, we do both premium and long tail content, and at the same time, we have content relationships in place that fulfil our current application needs.

    We also believe that specific areas like m-commerce, video, social networking and advertising on mobile are big-ticket items and warrant specific focus. We are ready to design some of these products on our own, and for some, we will invest in other companies.

    Jagdish Mitra
    Entertainment services, which have constituted the foundation of the Indian VAS industry, will continue to grow. However, our focus is also on utility applications that deliver day-to-day consumer needs, and also on enterprise mobility applications that go beyond email, and provide enterprises the ability to do business and improve the productivity of their workforce.

    We are primarily technology enablers for VAS and are focused on areas such as mobile entertainment services like multiplayer gaming, mobile blogging and music. We also provide content providers with an opportunity for content monetisation through off-deck portals.

    The other areas of interest for our organisation include portal management services for operators and media companies; digital brand promotion on TV channels and mobile phones; utility VAS for consumers like mobile banking; and network VAS products like data optimisation for provding enhanced quality of service.

    Milind Pathak
    Services that contribute majorly to Buongiorno's revenues are managed services such as text portal management where we are a market leader; data portal and WAP portal management in which we are the only player to offer concrete solutions to operators and media companies; and mobile social networking for operators and media companies. Our mobile social networking site has already been launched with a leading operator. It is adding huge subscriber numbers daily. An exclusive mobile community for the youth, the portal integrates a one-of-its-kind convergence through the web, WAP and SMS, and enables browsing, applications and connectivity to other social networks.

    The company focuses on customer relationship management practice, customer education and transparent communication, as well as on strong innovation strategies.

    What are the industry's key issues and challenges? How can they be addressed?

    S. Dharmapuri
    Other than mobile number portability (MNP), we do not foresee any major challenge facing the VAS industry. But we are all geared up with our new applications and solutions to address the challenges associated with MNP.

    We need to recognise that this is a rapidly evolving space cluttered with vendors offering point products. Operators need to differentiate the companies with smaller ideas from the sustainable players.Few VAS players have a strong technology platform to support a host of services on a sustained basis.

    Vineet Kaul
    We think players in the market have started to take positions –­ they have identified core areas of competence. This will help bring some order in the market and serious players can have better focus.

    The market is still revenue driven and customer delight takes a back seat. A lot of focus is needed on bringing product standardisation and improving user experience.

    Mobile operators either have, or will, in the near future, focus on increasing revenue through applications and this should boost not only the adoption of new services/applications, but also help the revenue bottom line. Things like revenue share, rollout of 3G network, etc., will also help push this ecosystem ahead.

    Jagdish Mitra
    Some of the key challenges are:

  • The delay in spectrum policy has led to congested networks and little or no bandwidth for data-efficient applications.
  • Transparency is required in the entire VAS ecosystem; for instance, there should be a more transparent system in place for allocation of short codes.
  • Awareness is a big challenge as operators spend more on subscriber acquisition than on educating customers about VAS.
  • Users are also confused about the tariff structures for premium SMS, IVR and data usage services.
  • Device-specific challenges need to be addressed as supporting VAS requires an increase in features like enabling mobile internet, albeit at lower price points.
  • There is a lack of content with not much available beyond Bollywood and cricket.Content localisation and diversity should be made available to consumers, as India is a country with over 14 dialects.

    Milind Pathak
    High cost factors: High pricing of VAS offerings is a challenge to the growth of this segment. The cost factor of VAS is a major hindrance in the adoption of the VAS offerings by a higher number of users. Hence, offering value-for-money services will aid in the growth of VAS.

    Inadequate awareness: The limited awareness amongst users about VAS is another roadblock to VAS adoption. VAS is an impulse purchase; hence, to increase consumption, the services will have to be well promoted. Marketing efforts will educate customers about the various services and their usage.

    Poor network quality: Another impediment in the usage of VAS is the quality of network available with operators. User experience while accessing and downloading services has not been optimal. Even mobile internet browsing has suffered a blow on the same count. A lot now depends on 3G, which would enhance and improve the required network for current and future VAS.


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