These beyond-voice services constitute just about 10% of the mobile industrys total revenues. This, despite the fact that collectively cellular operators boast of thousands such services on offer. Besides, VAS has much higher margins to offer to Bharti Airtel, Vodafone, Reliance and the like than do the plain voice services. Yet, these companies have not done enough to push the revenues from VAS.
The picture is even more disappointing if you take into account the fact that out of 10% VAS revenueof the approximately Rs 80,000 crore (about $20 billion) the cellular industry is slated to make this fiscal (2007-08)nearly half would accrue from plain SMS.
So, despite talks over the past few years about new VAS areas like MMS and location-based services, which help people find restaurants, cinemas and clinics in the areas they are moving around, not much has happened.
For example, the much-hyped MMS, which was supposed to have taken the world by storm some years ago, is just a faint memory that had something to do with naughty schoolgirl clips and frontal view of some starlets. MMS just didnt take off despite the big potential of exchanging smutty stuff among friends. Nor did the not-so-liberal users flood the networks by sending the pictures of flowers or cards to their moms, sisters or wives.
The promos of cute family holiday videos in the Alps didnt do the trick either. This is what a once MMS enthusiast at a leading operator had to say, MMS contribution in VAS is so small that we dont talk about it much. Ditto for Mobile gaming.
On the positive side though, music moved in as a big earner. Ringtones, caller tunes and songs have become No 2 after SMS, constituting 25% of VAS revenues.
Cellular industry Arpu (average revenue per user) has gone down substantially and with falling tariffs voice margins are under pressure. VAS with high margins and huge revenue potential is the way forward for the industry, says Romal Shetty, a telecom expert at KPMG. But cellular operators have not invested all that much in VAS infrastructure. Especially, content and pricing needs to improve, he adds.
Shetty is of the view that most of the cellular operators still continue to spend on building brands and not so much on selling the services that they already have.
A lot of operators are beginning to discover that. They have a very wide range of services but their customers are not aware of it. I think there are two main challenges before us as far as VAS is concerned, says Gopal Vittal, marketing director at Bharti Airtel. They are innovation and ensuring adoption of the services operators offer.
In fact, Bharti Airtel, arguably a leader in introducing a wide range of value added services (with special focus on music), has recently set up a dedicated group that works on making customers aware of the wide range of services it offers across mobility, broadband, enterprise etc, and help them adopt those services.
Vittal is of the view that over the next 18 months or so cellular industrys VAS share should grow 50% and constitute about 15-16 % of the overall revenues.
From the consumers point of view, richer content at reasonable costs is the key to the success of mobile advertising in India, says Mahesh Prasad, president, applications, solutions and content group, Reliance Communications. He is of the view that mobile operators, agencies and brands in India are waking up to this fact as a new revenue area. Similar models like in the ones in US are definitely on the cards in the near future. That is, mobiles are not only to deliver messages but also for data and voice based VAS, says Prasad.
But there are a few issues that are intricately woven into the problems of adoption and innovation. One is that of high pricing of VAS. And, the other is the lions share of the revenue that phone companies keep with them and give only a small portion to third party developers inhibiting innovation.
Some experts estimate that contrary to the global trends Indian cellular operators keep up to 80% of the revenue with them. Cellular industry officials concede that they keep a bigger share in many cases but disagree that it is always as high 80%. They say that in case of applications developers they give out much more. It is just that sometimes there is more than one copyright involved. For example, the right of one songs ringtone may be with somebody else and that of Trutone, with someone else in which case.
This model is significantly different from evolved market like China where the share of operator is typically 20-30% in the entire chain and aggregators and owners keep a much higher share.
Another reason for players playing safe and not investing in novel applications and content is because this market is greatly affected by piracy. This acts as a barrier for companies investing in content development. Besides, there are a lot of services that cannot be introduced in India because of lack of supporting infrastructure. According to the Internet and Mobile Association of India, location based VAS is still not possible due to the lack of digitised map of India.
In evolved markets like Finland and Korea, a user can shoot his own video and simultaneously show it to his friend in some other city. But this kind of live video-sharing applications are yet to arrive in India. Even though people are waiting for the roll-out of 3G services to experience high end VAS, a majority of people purchase low-cost handsets for basic utility services such as voice and SMS. These handsets cant support high-end VAS applications.
As for the high prices of VAS, operators keep huge margins to make up for rapidly declining voice tariffs, especially STD and ISD. They are trying to make up for that huge Arpu dip (also, triggered by the fact that new customers coming on to the network dont have a very high spend on telecom), by keeping VAS prices high. But that wont hold for long. The good old high-volumes, low-pricing strategy is expected to come into the play soon. In fact, Vittal cites Bharti Airtels recent experience of halving the rates of ringback tones and seeing the downloads soar.
But, some experts feel that VAS should be ready to go beyond music and wallpapers. Says Nokia India MD Shiv Kumar, there are a host of services beyond entertainment that people need, especially those in and from small towns and low income group.
According to Shiv Kumar these services include availability of digitised land records, facilities for money transfers for migrant labourers, telemedicine and so on. I am sure there is a great demand for these services but they are yet to take off. A lot of these services can be offered on reasonably priced handsets, he adds.
For instance, some experts feel that VAS would get a major boost once equity trading is allowed through mobile phones. The move would herald the real beginning of m-commerce (mobile commerce). For now, only portfolio tracking is done on mobiles, wherein one can know of stock prices, but actual trading is not allowed.
The moot point is that the possibilities of what your mobile can do are immense. But until industry and the government shift their focus away from licencing and spectrum tangles they have knotted themselves in, subscriber numbers, and not service quality differentiation, will remain touchstone of the valuation game. Industry experts project that the global digital mobile market is expected to hit $50 billion by 2010. It would be only wise on part of the Indian mobile industry to tap into this huge potential.