Trend

VAS: A story beyond ARPU

Value Added Services are facing a great deal of challenge in coming into the mainstream. Varun Aggarwal tries to investigate where the problem lies.

According to Cellular Operators of India (COAI), mobile subscribers in India crossed a whopping 171.5 million mark in December 2007 and are still going strong. With the increasing competition and TRAI regulations, India has perhaps the lowest ARPU for mobile users in the world. That said, the telecom operators in India are lagging behind their counterparts in the APAC region in terms of offering more Value Added Services or VAS.

There exists a vast world beyond voice that needs to be explored and tapped by the cellular industry. Spoilt by choice and options, mobile phone subscribers are in many ways beginning to choose their operators on the basis of the Value Added Services (VAS) that they offer. The increased importance of VAS has also made content developers burn midnight oil to come up with better and newer concepts and services.

Pushpendra Mankad, Managing Director, Comverse Network Systems India Pvt Ltd. said, “In India, average Minutes of Usage (MOU) and Voice ARPU continue to decline due to increased service penetration into lower income segments. As the Indian mobile market enters a more mature stage, operators seek additional ways to generate revenue. Mobile subscriptions in India continue to grow, although the rate of growth can vary significantly from month to month.”

Growth drivers of VAS market are declining ARPU, commoditization of voice and brand differentiation. As the subscriber is maturing, mobile phone is not used for only voice communication but it doubles up as Music player, Internet surfing device, to read newspaper and to even check bank balances.

According to Sourabh Kaushal, Industry Manager, ICT Practice, Frost & Sullivan, South Asia & Middle East, “The contribution of VAS to the total telecom revenues stood at 8.3% in Dec 2006, rising to 9.5% by December 2007. We expect to see the increase in the contribution of VAS to the total revenues and it is expected to reach a 16% mark by 2010.”

“30-40% of VAS revenues are generated from ringtones, caller back tones or hello tones, wallpapers, screensavers and these days games are also being developed around movies. Mobile music has over taken music sales, companies like Saregama generates 50% of its revenues from ringtones offered through its catalog and mobile rights of movies are sold for more than two to three million,” said Dr. Debasis Chatterji, Director, NetXcell.

SMS generated through television shows is one of the most used VAS services, KBC hosted by Amitabh Bacchhan generated more than 58 million SMS in three months and Indian Idol generated more than 50 million SMSs too as SMS gave the power of interactivity to TV.

Challenges in the growth of VAS

According to Kaushal, Mobile data services revenue made up only 8.3% of the total mobile revenue in 2006, which is a rather small proportion as compared to the other countries in the Asia Pacific. “The main reason for this is the low SMS usage in India. Hence, for data revenues, operators tend to target only the relatively tech-savvy youth, who are enthusiastic about new applications and have the willingness to pay.”

Another issue related to the growth of services like wallpaper and music downloads is that copyright protection in India is not that stringent and there are frequent instances of violation. People prefer to download wallpapers and MP3 songs from the Internet instead of getting them through the telcos, which requires about Rs 5 per download for wallpapers and Rs 20 per download for songs. Even many mobile games are available online for free, hitting hard on the revenues of mobile game providers.

Although voice-based services like caller tunes, horoscope, cricket live etc are seeing adoption in the country, but owing to the high prices (an average of Rs 6 per minute), widespread adoption still requires bringing down the prices. This could be possible through a better partnership between the telecom providers and the content developers.

However, according to Dr. Chatterji, “VAS is seen as a perceived value so the pricing doesn’t matter as perception changes from person to person. The ringtone or CRBT of a hit movie has more takers compared to a movie which doesn’t do so well. The subscriber is willing to spend money on what he thinks adds value to him.”

Revenue Sharing

The current revenue sharing model, (wherein the telecom providers get a major chunk of the revenues) gives limited incentive to grow the mobile VAS ecosystem.

“Operators typically retain the largest chunk around 60% of revenues, followed by 15% to 25% for content aggregators, and 10% to 15% for content creators. The share of operators is expected to decline from the current 60% to 30% by 2010, with other players across the value chain accounting for almost 70%, as compared to 40% at present. The revenue sharing model in the future in India is expected to replicate the model seen in developed MVAS markets such as China, Japan, and Europe.70-30%,” said Dr. Chatterji.

Kaushal is really disappointed with the current revenue share model and he feels that growth and innovation in the VAS industry can only be propelled through better incentives for the content providers with a 50-50 revenue share.

Voice VAS

Voice accounts for the lion’s share (about 80%) of total mobile revenues, and voice-based value-added services are therefore mission-critical to operator success in India as they are in virtually all other countries.

Call completion is a focal issue in India, as it is for all operators. Cumulative global research shows that on the average, only about 70% of all call attempts are completed. In India, where coverage—especially in rural areas—is an issue, this figure may be worse. This means that more than 30% of all calls are not completed, leading to needless and uncompensated usage of network resources, user frustration, and a significant loss of potential revenues.

Mankad opined, “Call completion services improve the user experience, and they maximize voice revenue by helping operators steer all uncompleted call attempts to satisfactory and billable conclusion. Moreover, call completion services generate new traffic from existing traffic by increasing callbacks. Individual call completion services can address part of the challenge, and a total call completion approach goes further, acting in a synergistic manner to establish a total and well-integrated solution.”

One of the ways that India differs from many other areas in that the mobile user base is growing extremely quickly. Also, the disposable income of many of these users is lower than in many other countries. “One of the consequences of these differences is that many of the new users have no history of voicemail usage and are reluctant to take on a perceived extra expense, so voicemail penetration is lower than in many other regions,” he added.

For that reason, it is important that call completion in India addresses the needs and preferences of the large non-voicemail segment, and that the call completion services work in push mode and so the usage is high with no need for expensive, marketing campaigns. In addition no high-end phones or clients are needed since the services are network-based, allowing 100% subscriber coverage. Regulatory issues, if any, which prevent call completion can be resolved by the Operators Associations.

Additionally, as both subscribers and the regulator are cost conscious, platforms must allow operators a dynamic offering that is perceived as user-oriented and beneficial, not as costly unnecessary additions to service. As the market matures, the operator can adapt the services to evolving market conditions.

The road ahead

Moving ahead, Global Positioning system or the GPS could be a hot feature for the telcos. Currently in India this technology has enjoyed limited adoption due to improper mapping. With the high rate of infrastructure development and dynamic landscapes, even in the metros most updated maps are often not available. However, GPS is expected to take off once such limitations are overcome.

There is also a need to focus on higher end informational and transactional services. Kaushal predicts that local information like the best crop of the current season, best place to shop etc could be in huge demand. Further aggregating this content in regional languages would further help customers even in rural areas, to become mobile-savvy.

3G may bring plethora of services like mobile TV/video, full-motion videos, wireless teleconferencing, multi-player online games, and m-commerce. “These services typically require high bandwidth and a superior level of support technology than the currently available 2.5G. The introduction of 3G/4G in the near future is therefore expected to facilitate a wider portfolio of VAS to mobile users. The video/TV and games segment of the MVAS market are expected to register the highest growth rate with advent of 3G,” concluded Dr. Chatterji.

varun.aggarwal@expressindia.com