In VAS we trust

Telcos at the time of launching mobile services would have never thought that voice revenue, the very foundation of their business, would one day come under severe pressure. So much so that they are today forced to think of alternate sources of revenues. Krishna Kumar reviews the value-added services strategy

‘Accessing people when they are on the move’ was the basic premise for the need of mobile telephony. From that premise we have travelled a long way to where mobile phones are becoming part and parcel of our daily lives. The world over, voice still contributes about 90 percent of revenue. However, it has been steadily falling with non-voice revenues rapidly increasing. Although voice revenues are falling, the overall revenues for an operator have increased, thanks to a whole host of value-added services (VAS) that operators have launched.

Amongst all the VAS, short messaging service (SMS) has proved to be the rabbit pulled out of a magician’s bag. In 2002, 366 billion SMSes were generated the world over, netting $36.6 billion in revenues for operators. In India, about five billion SMSes were generated in the same year, and at a rate of Rs 1.50 per SMS operators generated a cool Rs 750 crore.

Although P2P (person-to-person) messaging is the major contributor to SMS traffic and revenue, SMS-based VAS has been increasing exponentially month to month. Initially, it was services like chat and dating that brought a jump in traffic but of late traffic from these services have stabilised. The new kid on the block is ring tone downloads. The trend of ring tone downloads is global.

VAS has definitely caught every operator’s attention, but to what extent these services are contributing towards substantial revenues is still a question mark. Today data-based VAS is more of hype, at least from the revenue standpoint. There is a huge untapped area in VAS, which when fully exploited will bring big bucks for operators. However, for that to happen operators need to approach the game with a new mindset, something that NTT Do Co Mo has done in Japan. NTT considers itself as mere ‘pipe’ between the subscriber and the content provider. As a result, the Japanese mobile market offers the widest range of content.

How can operators benefit?

The four major sources of revenue-generating content for an operator are.

• Operator database & network
• Individuals
• Entertainment and media companies
• Enterprises.

These four content sources when working with each other are a gold mine. Until now all these sources have been working individually and with a fair amount of success in terms of revenue generated. However, for the gold mine to happen these four content sources need to join hands and work in sync with one another.

First, let’s discuss each one of them:

Operator database and network:

While registering for services a subscriber provides a whole host of demographic information—name, date of birth, income, address, area of interest and many more.

Each of these pieces of information in turn tells a lot more—from date of birth, age and zodiac sign can be inferred. From address, the financial position, etc. This information in turn can be used in offering a VAS, which is either a revenue generator (horoscope alert) or relationship enhancer (birthday greeting).

The operator network is one of the largest untapped sources of content. It is like an iceberg. Take subscriber location, subscriber status (out of coverage, switched off), usage pattern, etc.—each of these can be utilised for increasing revenues directly or indirectly. For instance, an operator can offer missed call alert services to all subscribers for free and generate revenues through call back.

Amongst all content sources, high amount of care must be taken before utilising this source to avoid any backlash. For instance, location-based services offered by an operator might be taken as an infringement of privacy.

Individuals:

Individuals require bits of information from time to time. Such information may either have a utility value or fun value. Fun value services are the ones which drive revenues. News, jokes, travel, horoscope are the best example of such services. Individuals drive a lot of traffic; P2P messaging is a classic example of this.

Entertainment and media companies:

Entertainment and media companies are next only to individuals (subscribers) in terms of generating revenues.

Media and entertainment companies can be grouped into:

Print : Express Computer, The Indian Express, New York Times, etc

Web : Yahoo, MSN, Rediff, etc

Electronic : Sony, Star, Aaj Tak

Movie : Columbia, Warner Brothers

Records : Universal, T-series, Venus

Distributors : Shringar, etc

Exhibitors : Theatres.

Electronic media companies have a special characteristic of generating spike-based traffic. The volume of traffic generated in a given period of time is so high that networks have to forego large amounts of traffic owing to capacity constraints.

Enterprises:

Enterprises having frequent transactions with a large customer base have a need to communicate with their customer base on these transactions. This segment is still in its nascent stage. Companies falling under this are: banking, financial services and insurance (BFSI) firms such as HDFC Bank, ICICI Prudential, Kotak Mutual Fund, Escorts Securities.etc; direct marketing firms (Amway, Oriflame, etc), retail stores, travel and tourism. However given the uncertainty in revenue generation this segment may have a shaky future.

Content partnership is the gold mine

Explosive and substantial revenue growth for an operator will come when it is able to forge an alliance with all the four content sources. This the way to mine the gold mine. Let’s look at some of the services that an operator can launch using this relationship.

New tariff plan for entry segment: For market penetration, operators need to tap those who are not part of an existing subscriber base. People falling in this segment are those for whom mobile services are a necessity but owing to price could be on the verge of being a luxury. Operators need to target them with a low tariff plan. However given the overall average revenue per user (ARPU) pressure and the fact that the target segment is not that lucrative in the short term it makes little sense to further reduce tariffs. In such a scenario, an operator can partner with enterprises for sending various promotional messages. This medium of these promotional messages could be SMS or MMS, or voice or a combination of these. For instance, a subscriber on this plan could receive three SMSes and one call. The call can be from the call centre of an operator giving details on a particular product. The other innovative means could be that in a given day at least once (at random), while making an out-dial, a subscriber by default listens to an ad message.

Care must be exercised on the nature of products and services being promoted. It makes little sense to talk about high-ticket items (air conditioners, foreign travel, etc), which are far too aspirational to this segment. Instead, low-value items like soaps, shampoos, credit cards, etc, which are consumed by this segment must be promoted. In short, the promotional offers should be in tune with the demographic and usage pattern of the target segment.

The two distinct sources of revenues for an operator would be from the new subscriber who has joined and secondly from the enterprise whose promotional messages are sent. An operator can charge these enterprises a fixed fee per month, per impression of the promo message or the combination of the two.

Location-based offer: While servicing a subscriber’s request for a restaurant the operator can send the list from the static database (as is presently done) or the list is sent after taking into consideration several factors (unless a subscriber in his request has specifically mentioned any one of the factors) such as subscriber’s current location (available from operator network), usage pattern (available from operator CDR. Usage pattern needs to be mapped with restaurant grade), food preferences (if available from the form filled at the time of signing up for the service).

The new sources of revenue for an operator in such a case would be from the usage of such services by the subscriber. The operator may decide to charge a premium. Secondly, an operator can tie up with restaurants and them to pay a nominal monthly fee plus per-impression fee. Also, a restaurant can be given an option of offering special discounts. In this case an operator can ask for a little more in fees as the restaurant gets additional traffic owing to that special offer being communicated when the subscriber wanted it.

The above two cases are just an example of innumerable possibilities. However, the success of any such service would depend on the partnership strength of the four members.

The author is with Cellnext Solutions and can be contacted at krishna.kumar@cellnext.com