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Adding Value - Business case for VAS

July 15, 2010

With operator margins taking a hit on account of low ARPUs, and even lower tariffs, service providers are realising the importance of value-added services (VAS) as a means of differentiating their offerings and surviving the intense competition in the sector. Leading operators and industry experts share their opinion on the strategies being adopted in the VAS space and some of the major issues in service uptake...

What proportion of operator revenues is accounted for by VAS? What are the key strategies being adopted by operators to increase their revenue share from VAS?

Kunal Bajaj
The proportion of VAS revenues has grown only marginally over the past four years from 8-10 per cent to 10-12 per cent. To further increase this share, service providers are mainly focusing on operatorcontrolled VAS like caller ring-back tones (CRBT) and other subscription-based services. But, going forward, they will have to become more creative because of the wide variety of users in the marketplace. The offerings will have to be different for different segments. While for high-end users, operators will have to focus on application services, for low-end customers or rural customers, they will have to look at voicebased or livelihood-related services.

Usha Iyer
VAS revenues contribute 8-10 per cent to operators' revenues as per the current industry standards. The strategies being adopted to increase this share include higher customer segmentation in terms of products, pricing and communication. Moreover, innovative approaches are being adopted in this regard, such as a greater focus on social networking services which build in customer stickiness and add value.

Rishimohan Malhotra
The mobile telephony market is showing a lot of promise, with VAS being an area of significant growth. VAS helps the operator to maximise revenue and grow ARPUs.There is an increased transformation of business models with an aggressive focus on VAS. Currently, mobile VAS (MVAS) accounts for 11-12 per cent of operator revenues. The Indian VAS market, including messaging, mobile internet, social networking and mobile payments, stood at approximately Rs 140 billion in 2009 and is expected to cross Rs 200 billion this year.

For VAS to succeed in any market, there are three basic attributes that have to be looked at: accessibility of service and ease of discovery, bundling of service, and content quality. Any one attribute alone cannot contribute to the success of a service or increase in usage and revenue.

The success of VAS also depends on the management of its life cycle. VAS like CRBT would not have been popular if options like "Press * to copy the song" hadn't been provided. Currently, CRBT constitutes 28-30 per cent of an operator's VAS revenue. Data services, driven by low-cost GPRS handsets are also beginning to generate significant revenues.

Dr Mahesh Uppal
Currently, VAS constitutes 10-15 per cent of the total operator revenues. Operators realise that given the highly competitive market, the margins could be much higher in VAS. Bollywood or cricket-related entertainment, or employment-related information offer immediate opportunities. The focus is on entertainment services since the demand for these applications extends across economic and regional levels.

What are the key drivers for VAS? Which services are witnessing higher uptake?

Kunal Bajaj
One of the key growth drivers is that with increasing users on the network, their maturity is also increasing. That means we have more people on telecom networks for longer periods of time. As people's familiarity with using telecom networks increases, they start experimenting more with VAS.
So the comfort level is a major advantage.

Other operator initiatives include reducing data charges; configuring subscription to allow daily or weekly billing instead of monthly billing plans; offering niche elements like regional and religious content; and trying to ease the process of subscription and unsubscription, as well as the process of discovery (operators are working on mechanisms to help customers find what they are looking for). Moreover, the drop in data tariffs has resulted in increased usage of data and subscribers.

Usha Iyer
Music and gaming are currently witnessing the highest uptake. These are being closely followed by GPRS and social networking services.

Rishimohan Malhotra
The MVAS industry in India is undergoing a lot of structural changes and is poised to grow and contribute higher revenues to the telecom sector in the coming years. The prominent growth driver of MVAS will be the consumers' desire to get more from their mobile phone. Today, VAS is no longer synonymous with caller tunes, ringback tunes, wallpapers, etc. A lot of convergence has happened in the telecom space, especially VAS, and many new applications and user interfaces are being developed and marketed. For instance, mobile advertising, mobile marketing, search engine optimisation, social networking services, video content, m-commerce, and more.

Some other trends in VAS include:

  • Local content development -­ Increasing focus on localisation will make e-VAS services more attractive. With the number of users from non-metros and small towns growing, local content, especially local language songs as ringtones, localised wallpapers, screensavers and contests will have a greater role to play.Development of tools and fonts in all major Indian languages or voice-activated services that cater to multiple languages will find increased usage
  • M-commerce There will be an increasing use of the phone as a payment device for utility services, merchant payments and microfinance. Mobile TV -­ With a push from the telecom ministry, and the target of making mobile TV available in the top 20 cities/towns, mobile TV is likely to emerge as a new milestone in customer experience.
  • Entertainment -  Low-cost external memory will lead to branded preloaded entertainment in the form of films and music. User-generated content will also find a space with the emergence of 3G.
  •  Mobile internet - The mobile device will increasingly draw upon the internet and emergent Mobile 2.0 models to develop internet-driven services.

Dr Mahesh Uppal
The biggest driver for VAS is entertainment because the demand for these services is huge and there is ready availability of content (cricket, Bollywood, music and clips, etc.). Another major trend in the industry is social networking. There is a visible effort on the part of the operators to familiarise users with the applications that can be offered on their mobile phones.

How is this market likely to evolve with the launch of 3G services?

Kunal Bajaj

With 3G, multimedia services are expected to do much better now because the data throughput and user experience will be far superior. This implies that applications like mobile TV, video clips and music streaming will come to play a major role.In addition, simple connectivity options for laptops like dongles and netbooks will also pick up under 3G.

Usha Iyer
Following the rollout of 3G, high-end virtual services that involve higher speeds, enhance networking, etc. will evolve better in a 3G environment as compared to 2G.

Rishimohan Malhotra
Since the promise of 3G goes beyond highdata transfer speeds, it will provide a growth impetus to operators and usher in the next level of communications. 3G enables operators to avhieve significantly improved spectral efficiency, as 3G networks have the capability to serve a higher number of subscribers than 2G networks.

With faster data speeds, 3G will support data-intensive services like full-motion video streaming, video conferencing and high speed internet access on mobile phones and wireless devices. This will give a strong fillip to VAS, opening up a world of customised applications that will cater to individual needs and desires.

At Tata Teleservices Limited, we have been working closely on the creation of relevant products and services with our partners, particularly NTT DOCOMO, which is acknowledged as the world leader in telecom technology development, especially in 3G and 4G long term evolution.

Dr Mahesh Uppal
The quality of entertainment services will be considerably better on 3G networks because of the higher levels of bandwidth available. Since most entertainment services tend to be bandwidth hungry, 3G will make a big difference to the user experience. Social networking sites are not bandwidth hungry unless users upload pictures, etc., but require high levels of interactivity. Therefore, bandwidth requirement is considerable in this case as well.

Given that a bulk of the subscriber additions is coming from rural regions, which services are being developed for these areas?

Kunal Bajaj
To get people in rural areas to spend money, the key is that you ensure them a return on their investment. This will basically come about by offering livelihoodrelated services -­ services that can enhance their livelihood or learning capabilities.Rural populations are also looking for entertainment-based services since their alternative means of entertainment are limited. But their real spending ability will be on agriculture, education, healthcare, governance, and other professional and utility-related services.

Usha Iyer
Operators are gradually moving to capitalise on the rural bonanza by way of interactive voice response-based services such as agricultural updates, language learning, classifieds and commodity pricing in local languages. Also, marketing activities to promote the same are being implemented.

Rishimohan Malhotra
Industry sources predict that by 2012, rural consumers will constitute almost 60 per cent of India's mobile subscriber base.
This places an onus on the operators to understand and devise effective strategies to tap this entirely multicultural and multilingual base, spread across 28 states with about 22 official languages.

Some of the essential services that will fuel the growth of the ecosystem include agriculture and utility services like mandi rates that will bridge the divide between the producer and the market; educational services including learning English; commerce services such as rural yellow pages, rural bazaars on voice platforms and money transfers; health-based services like counselling on nutrition, hygiene and general sanitation; and social and community building measures such as e-chaupals and mobile community melas.

Given the low ARPUs, the challenge is to position these services via a blend of voiceand text-based applications. A collaborative approach among various stakeholders will, therefore, be necessary.

Dr Mahesh Uppal
The biggest challenge lies in providing governance-related services in rural areas.This also forms a major part of the government's e-governance initiative. Once egovernance services are available and the Unique Identification Authority of India is able to roll out unique identification (UID) numbers, there will be a whole range of services relating to the public distribution system or transport, all of which will take off in a big way once the UID is integrated with VAS.

What are the key issues and concerns?

Kunal Bajaj
Some of the key issues and concerns are related to proper discoverability. The other issue pertains to making the VAS market accessible and related to the needs of those at the bottom of the pyramid (rural populations). Therefore, services like local language SMS, local language mobile internet sites, local language applications, as well as local content still need to be promoted on a larger scale. Another major challenge for VAS is the device capability. At present, more than 50 per cent of the devices sold in India are low end with only basic functionality (typically, just phone and SMS with a few embedded games). These devices do not have the capability to offer VAS beyond services like CRBT.

Usha Iyer
The primary issues in the VAS space relate to the absence of an innovative product or a killer application, which is required given the rapidly changing needs of the customer. Moreover, with a number of operators wanting a share of the pie, the focus is increasingly shifting towards VAS to acquire as well as retain customers.
Therefore, VAS is likely to become the main differentiating factor that will determine market positioning for most of the operators.

Rishimohan Malhotra
Like any other promising industry, the MVAS space has its share of challenges that will resolve with better infrastructure, advanced technologies, more conducive regulations and a well-designed structure.Some of the major challenges include high infrastructural costs, and the diversity of spoken languages and cultures across the country with accents based on regions, dialects, cultural issues, etc.

The distribution of telecom products is one of the biggest challenges facing operators. Higher capex is another challenge that a service provider faces, specifically due to low ARPUs.

For the rural masses, voice-enabled services will continue to rule along with the availability of low-cost handsets and tariffs.Unless the rural subscriber is convinced of getting value for money and the service, he would not want to subscribe to it.

Dr Mahesh Uppal
There is a need to ensure that operators do not introduce hurdles like demand for high revenue shares from VAS players.This will incentivise the latter to develop new and innovative applications.

Given that almost all VAS will be based on the wireless platform, availability of spectrum will be a major issue. If the industry is able to manage spectrum in a way that is transparent as well as devoid of greed for revenues or fees upfront, we will see a fair amount of growth. Though the 3G auctions have been largely successful, we should be aware of the fact that transparency does not necessarily mean high prices. Spectrum needs to be allocated transparently based on its market value.Since we don't want to burden companies with high spectrum costs, the government will have to release more spectrum to ensure that its price does not skyrocket.


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