Mobile VAS (Value-Added Services) in India: A brief insight - Part II

An astounding rise – can best describe the growth of the Mobile Phone market in India over the past decade. Declining call tariffs in conjunction with favorable regulatory policies have lead to a tremendous increase in the subscriber base, crossing the 600 million mark in 2010, almost six times its value four years ago. While the growing subscriber base has positively impacted industry revenues (which have risen consistently over the past few years), operator margins also have shrunk, pulling down “Average Revenue per User” (ARPU). As ARPU declines and voice gets commoditized, the challenge is to retain customers, develop alternative revenue streams, and create a basis for differentiation in high-churn markets – through Mobile Value-added-Services (VAS).

Mobile phones today have moved beyond their fundamental role of communications and have graduated to become an extension of the persona of the user. We are witnessing an era when users buy mobile phones not just to be in touch, but to express themselves, their attitude, feelings and interests. From playing games and listening to music, to keeping a tab on astrology and checking their bank balance, to reading news headlines and surfing the internet, the Indian mobile user has created a platform of boundless growth for the VAS, in the market. The following diagram illustrates a year-wise analysis growing revenue (in $ Million) from the Value-added-Services in the past half a decade.

Different VAS categories are – Entertainment (Ringtones, Caller Ring-back tones, Games), M-Commerce (Services allowing transactions on mobile phones, eg. Fees deposition, Booking Air Tickets) and Information (Bank Balance Enquiry, Air/Train Ticket Status, News Alerts, Stock Prices).

The main stakeholders involved in the VAS value chain are shown in the adjoining illustration. Also shown are the existing players in these different categories.

The Mobile VAS industry has grown by leaps and bounds in the past half a decade. The mobile subsciber base has increased from a meagre 100 million in 2006, through 330 million in 2007 to 600 million in 2010. It is expected to scale up to a whopping 900 million by 2011. The drivers of growth for the MVAS industry can be summarized as:-

ü       SUPPLY SIDE DRIVERS

The ascending market, innovative marketing strategies and novel market policies have/are contributing as drivers to the growth of MVAS industry in the country.

• Marketing Efforts by operators

Operators are investing heavily in reaching out to customers more effectively to make them aware of various services being offered by them.

• Increase in User Base

On an average basis, about 21 Million mobile subscribers are being added every month. With increasing growth rate of low end subscribers, Traditional MVAS (P2P and P2A SMS) will have a huge growth potential among the low end mobile subscribers.

• Price Decline of MVAS services

Looking at the high growth rate of low end mobile subscribers the MVAS services are being offered at attractive prices such as subscription packs of free SMS, News Alerts, etc.

• New technology adoption by users

From 3G, new services for premium MVAS consumers will come like video services which use fair amount of bandwidth, (live TV, cricket match). Today because of lack of data speed it just does not work.

• Impact of 3G

Entry of foreign players like Deutsche Telecom, AT&T, etc, upon opening up of bidding for 3G, would surely encourage the growth of mobile VAS services for additional revenues and better technology. With higher speeds for data transfer, 3G promises a massive boost to usage of VAS for M-Commerce in specific, and entertainment and information in general.

• Entry of MVNO

Mobile Virtual Network Operator (MVNO) model has gained popularity in the last few years and there are over 500 MVNOs registered throughout the world. They operate through commercial arrangements with licensed Mobile Network Operator (MNO) and buy bulk minutes of traffic and resell them to their own subscribers. MVNO is seen as a natural progression towards enhancing free market principles and contributing to the efficient use of existing telecommunication infrastructures. Further, the removal of entry barriers by the TRAI will enable these asset-light companies to set up shop in the world’s fastest growing mobile market.

ü    DEMAND SIDE DRIVERS

In the age of convergence, the prominent growth driver of MVAS would be the consumers’ desire of getting more and more from their personal cellular device.

• Need for Entertainment

The Youth segment which makes 30% of the mobile market in India seeks entertainment through VAS

• M-Commerce and Transaction Based Services

An expected increase in transaction volume with infrastructure staying on limiting terms would propel M-Commerce.

• Local Content

Development of local content, which is predominantly non-existent as for now, would draw in a lot of customers.

With plenty of avenues taking the role of growth drivers, here we have an industry to scale up to unprecedented heights. With the government relaxing the norms for the MVNOs to enter the market, entrepreneurs with even a shred of an idea can set their sights on the M-market. A booming industry in a booming economy, need we say more about its future prowess?