Mobile Value Added Services in India
Telecom industry is one of the fastest growing industries in India and it has emerged as the showcase for Indian economic reforms. The tele-density in India has grown to 56% from a negligible 4% a decade ago. The Indian mobile industry’s annual revenue is around US $ 23 billion with the subscriber base of 630 million. While the customer base is increasing at 15-20 million every month, the industry is worried that it is not translating into revenue and profit margin. This is mainly due to a sharp decline in average revenue per user (ARPU) caused by reduction in tariff rates. Entry of new operators is further affecting the top line growth for the industry where the tariff rates have already hit the bottom levels.
The declining revenue trend has led the operators to look at new avenues for improving the revenue. Mobile VAS is now emerging as one of the areas which will provide huge opportunity to the telecom operators to improve the top line. Indian Mobile VAS revenue is today valued at $1.4 billion and it is projected to touch $ 4 billion in the next 5 years. With the launch of 3G and broadband services during this year, the industry experts project a substantial increase in the share of VAS revenue. It is evident from the fact that for operators like Airtel, while the ARPU is falling, the percentage of non voice revenue has shown a huge growth during the last quarter ending 31st March 2010. If these projections are achieved by the telecom operators, It will not be surprising if Mobile VAS revenue overtakes advertisement industry revenue during the next decade.
2. What is mobile VAS?
All services other than peer-to-peer calling come under Value Added Service in Telecom. This includes SMS & DATA services also. However as the industry is dynamic and growing, the definition of VAS changes from time to time. For example, many operators do not consider Peer-to-Peer SMS as part of VAS revenue since SMS as a product is now commoditized. Similarly data revenue is shown as a separate revenue stream by some operators.
Services like music, ring tones and games which are known as entertainment VAS, are very popular and have contributed significantly to the growth of VAS in India. On the other hand, services like news and information on bank account, real estate, education etc. are known as Info VAS. A third category of VAS which is emerging now is the M-Commerce VAS which allows customers to conduct transactions like banking and payment through mobile phone. These services are in a very nascent phase now in India.
The revenue potential of these three types of VAS depends on perceived value and practical value. The perceived value is based on the intangible benefits like emotional benefits. In the case of CRBT, the perceived value is much higher than the actual utility to the end user. Practical value on the other hand depends on the tangible benefits like the convenience and saving of time and money to the user. Currently the Indian VAS industry is driven by film, music and cricket based VAS which has a very high perceived value.
3. The VAS Value Chain
The VAS services are complex to handle entirely in-house as it involves huge capex and manpower resource. This led to the involvement of multiple entities like Content owner, aggregator, technology enabler in the VAS value chain.
In India Operators retain 60% of the VAS revenue, whereas the aggregator gets 25% and 15% goes to the content owner. In other markets like China, the operator gets only 20% – 30% and aggregators and content owners get higher share.
4. Challenges faced by the telecom operators
Lack of VAS education amongst the public is a major constraint, though recently we have seen operators making ad campaigns for creating awareness of Value Added Services. The high and mid customer segment as per SEC grid contribute to only 40% of the total mobile customer base in India. Balance 60% low end segment are using the low cost handsets which do not support the VAS. Even in the mid segment, it is only the youth segment which drives the VAS market growth in India.
The existing WAP portals need customization to make them more user-friendly. Speed of connectivity and lack of WAP enabled handsets also act as dampener leading to limited WAP usage.
Finally the current mode of selling VAS to the customer through auto dialers and SMS has got high nuisance value. Industry has realized this and making changes in their communication strategy. TRAI regulations also played a major role in bringing these changes.
5. Shape of things to come
We are in an era where the mobile phone is not just a communication tool, but it is also used as a clock, music system and a PC. Days are not far off when it is going to replace TV, newspaper and ATM card. Indian Telecom operators have realized that VAS is going to be the game changer, which will push the stagnating telecom revenue to the next level.
The I-phone launch in the Indian market has resulted in a major shift on the use of internet on the mobile. It is further strengthened by the new trend of setting up .mobi domain. Indian operators are setting up App Stores similar to the highly successful Apple App Stores, which is expected to provide useful applications for the Indian customers. The market is being flooded with fast and efficient Smart phones which will help customers to leverage the true power of Mobile Phone. GPRS usage is expected to go up significantly.
In India, VAS will see a lot of structural changes through consolidation and emergence of content aggregators and technology enablers. They will have a better bargaining power resulting in revenue shift from the telecom operators to the content aggregators.
Revenue share of entertainment VAS will come down from the current levels due to the growth of M-Commerce. M-Commerce has got tremendous growth opportunity in India. The services which would provide a boost to M-commerce in India are Mobile Marketing, Mobile Banking and Mobile Payment. A major step has been taken by RBI in issuing M-Banking guidelines. Mobile banking is the hottest area of development in the banking sector and is expected to replace the debit / credit card system in future.
Another major development expected is in the area of outsourcing. After outsourcing IT and network operations, Telecom operators are now planning to outsource the entire VAS management also.
To sum up, in the backdrop of declining revenue trend, VAS will emerge as one of the key revenue generating areas for telecom operators. They need to work on innovative solutions to capture this growing market, which will differentiate operators in this highly competitive industry. Mobile VAS will become more complex after the roll-out of 3G services like mobile TV, video conferencing and M-Commerce.