There is no doubt that policy initiatives can go a long way in making markets more effective as a mechanism for universalising a service. While regulatory reform in the telecom sector aimed at introducing competition was fairly successful with mobile voice services, it has yet to achieve the same level of success in non-voice services, also known as Value Added Services (VAS).
VAS can overhaul personal, professional and commercial interactions, freeing all communications from the hegemony of time and space. The low costs of mobile devices and networks also ensure that the masses can be an integral part of the system, by bridging the gaps between the banked and the un-banked, citizens and government. But most content delivered in India is of low quality and concentrated in the entertainment space i.e. movies, cricket and music.
In India, revenue sharing arrangements between mobile operators and players lower down the chain are highly skewed in favour of the former. Typically the arrangements are 60-70% for operators, 10-25% for content aggregators and 10-15% for content producers. The reasons usually cited for the operators? dominating position are control over data inside pipe, a ?walled garden? in handset equipment, and the presence of numerous small content players competing for business in the various VAS segments. Unattractive revenue packages disincentivise innovation and production of superior quality content on part of the content producers. This, in turn, restricts consumer choices and hinders evolution of the mobile as a delivery platform for high utility based services.
The revenue sharing arrangements in India differ starkly from those prevailing in other countries. In China, a typical revenue sharing arrangement is 15-20% for operators and 80-85% for service providers. In Korea, mobile operator SKT?s arrangement with content providers and its game platform provider is as follows: 85% of the revenue goes to the content creator, next 5% to license the game platform and SKT takes a 10% share to cover the costs of hosting and promoting games on its portal. Revenue sharing between game providers and operators is low in India, but current models for mobile games vary from 50:50 to a 80:20 share in favor of telecom operators.
VAS has a huge revenue generating potential. According to Trai, VAS revenue for mobile operators was Rs 3,676 cr for 2005-06 and Rs 5,904 cr for 2006-07, a 60% growth. Revenues are expected to reach above Rs 25,000 cr by 2009-10. While mobile operators justify present arrangements on the basis of access, billing collection and related costs incurred by them, VAS providers have been pressing for a correction of lopsided revenue sharing arrangements.
Countries like China and Korea where such arrangements favour the VAS providers have highly evolved mobile and VAS markets unlike India where the VAS industry is still at a nascent stage. In China, for instance, VAS accounted for over a quarter of all mobile revenues of China Mobile, one of the two mobile operators in China in mid-2007, while in India the VAS accounts for a mere 8-10% of the operators? revenue. One would expect that once increasing competition between operators levels takes off, VAS will emerge as a strong driver of revenue growth for mobile operators.
So, should Trai just wait for the market to mature? Given the time factor in self-corrections, some light regulation is desirable. Even as operators remain free to fix mobile tariffs, certain aspects can be regulated, like requiring them to inform both customers and the regulator of any changes in tariff. They should also be required to make their access and billing prices transparent to other players in the VAS chain. An ideal revenue sharing arrangement would be such that, after meeting the operator?s access and billing charges, the remaining revenue should accrue to VAS providers and content owners. Trai can definitely come up with recommendations based on these principles, giving way to a more equal positioning of the operators and standalone content providers.
The author is advisor, Indicus Analytics, and reader, Delhi University. The article is co-authored with Laveesh Bhandari, director, Indicus Analytics