Telecom VAS market in India - The road ahead

Mobile communication is one of the most popular innovations in the past half century. It is ranked only below, Internet & PC/Laptops. However in the recent times, mobile phones have surpassed both PC/Laptops & Internet users; thanks to the popularity of mobile phones in emerging markets. The emerging markets referred here are mainly non voice services like connecting to the internet, sending emails, playing so called ‘computer games’, entertainment etc. , the list is endless. These services are commonly termed as ‘Value Added Services’ (VAS) also referred as MVAS (Mobile VAS).

First let’s see how popular are these services in India?

To understand this let’s first look at some numbers.

India’s MVAS market is estimated at $490 million in 2012, a report by Wipro Technologies & Mobile Association of India (IAMAI). The report also added that the MVAS market will grow at a compound annual growth rate of 25 percent between 2012 and 2015 to reach 950 million in 2015.
The current MVASs that rule the market comprise of Ringtones, Caller Tunes, Cricket updates, Horoscope updates, wallpapers etc. But the magic wand for the growth of MVAS market is with applications (the apps); mHealth, mEducation, mgovernance & mWhat-not, you name it & we have an app for the same. As the penetration of smart phones will increase further we shall see higher penetration of these MVASs.

Now let’s see the other side of the story.

Source: TRAI

ARPU or the Average Revenue Per User of the telcos has been decreasing over the years, the main reason for this being the increase in competition in the market. Even with this fall, according to a report by IMRB, the VAS ARPU has been increasing, but the increase is very sluggish. This is because the telcos are focusing on subscriber acquisition with no incentives to push VAS. Apart from this, the main hindrance for the VAS market is the revenue sharing with telcos. With declining voice revenues; the only hope of the telcos is to increase the pie of value added services. Telcos is still following the “Walled-Garden” approach to maximize their revenue share and in the process is dissuading the consumers from using 3rd party services. In this approach, the operator is responsible for providing the platform for services, marketing and billing of services and in return they charge a hefty revenue share (as high as up to 70% in India). The high revenue share has made the VAS industry unattractive and has prevented the content providers from becoming big. However, in the recent past, strong non-operator players are attempting to introduce services like navigation, music, gaming, etc. to garner revenues from this lucrative part of the value chain.

But to add to their woes the recent TRAI recommendations is bound to create challenges in the long run. The licensing might put restriction on the growth of unregistered & small-time VAS players. There is also a concern among the VAS players that the regulation will have an impact on the cost of providing VAS. Any hike, be it of just 10 percent will impact the industry. MVAS is a luxury in the country and with mounting inflation, both the basic MVAS applications such as Ring Tones and Wallpapers, as well as the high-end ones such as video streaming, will plunge.

The Road Ahead

In the past, difficulty of delivering VAS on mobile offered relevance of telcos but now the technology has marched past them. The new GPS based services can bypass the operators and directly communicate with the consumer’s handset and this is where the Indian VAS companies are channelizing their attention.

The companies are concentrating on ‘Direct to Consumer’ (D2C) services. For example, you can download a Bollywood song from Hungama portal on your phone, using one of the networks provided by the telcos. These kinds of services have two advantages, Firstly, these services are owned, branded & marketed by the VAS companies, so they get higher revenue share from the telcos, which is almost 70% in the case of Vodafone. Secondly, it is a good form of branding; unlike earlier times when the end user was not concerned, which VAS company has provided the content they are using, these days, Hungama or say OnMobile has become a famous brand names among the users. This has helped in engaging & retention of customer base.

Another key growth driver is the changing mobile handset mix. The proportion of ‘Smart Phones’ has increased in the market which has eventually led to increase in demand for interactive communication among the users. The companies are trying to tap this market. Hungama for e.g. has gone live with six platforms for the users and it is developing six more, similarly, the list of categories & further sub categories of product of OnMobile is endless.

The MVAS industry has been driving the Indian telecom Industry from the last few years. With the increasing popularity of 3G (& now 4G) the consumers are demanding a near mirror experience of a PC. So the future looks even better. Some of the developments that we can expect in the near future are:

a) Mobile Advertisement, with more interactive & less irritating advertisements and higher conversion ratio.

b) Local Language Content: With so much linguistic diversity, no company can grow in India without delivering its products in local language

c) Rural MVAS: The key to the Indian market lies in the huge and hitherto untapped rural market, Location based services, Local Language and Right Content will be the key to serve this

Thus as in the PC world, no Internet Service Provider controls the ecosystem, it is expected that the mobile services would also evolve in the same way.