Rewiring value adds

Updated: Jul 31 2006, 05:30am hrs
Consolidation is ringing into the Rs 4,000-crore value-added services (VAS) market in mobile telephony. And the change would span the entire business spectrum from delivery technology; nature of content and the revenue share between operators and content providers, feel telecom analysts and people in the content business.

If the 3G or third generation networks are one of the push factors, the other is new wireless technology that would enable content providers and handset makers to push a wide variety of content bypassing the operators. The development of various kinds of wireless technologies means that in a few years from now, the number of value-added services would reach the customers handsets without being necessarily routed through the operators network.

For one, a mobile phone user would be able to download music directly to his or her high-end MP3 phones from a PC or notebook using an infrared (IR) port, bluetooth or cable connectivity of the phone and from a perfectly legal site without any piracy issues. So the mobile-telephony customer may not use the operators service to connect to the Internet, pay money for downloading music and video albums.

Some international reports are already talking about handset makers possibly teaming up with music sites or big phone manufacturers like Nokia to create their own music stores in future. This is apart from the loads of pirated music available.

Technology has opened up new possibilities that shrink the role of mobile operators as a medium to supply music and games to their customers, says IMImobile vice-president Bibhu Kumar. There has been no brand building in the mobile content space, outside of what the operators do for themselves. Its this situation that represents a golden opportunity for those who are long-term players looking to establish themselves in this market, says Mobile 365 country manager Kaustuv Ghosh.

Take the case of Cellebrum, a managed VAS company in the Indian market. It has decided to open retail channels or kiosks which are to be located in public places like shopping malls and railway stations. Touch screens in standalone kiosks would transfer the required content to the mobile users handsets. It could be anything from a wallpaper to music and games, says Saket Agarwal who is the chief operating officer at Xellebrum.com.

Citing the handset makers like Motorola and Nokia, who have started bundling more and more attractive ringtones, wallpapers and games, Agarwal said, In the next one year, this phenonmenon would only grow but would go to the next step. The retail VAS would be the next phase of a segment of the mobile market which is experiencing 40-50% growth.

In the European market, the operators are spending sleepless nights over fears of being sidelined by global handset vendors like Nokia,

Sony Ericsson and Motorola in alliance with the VAS software service providers. The VAS entertainment market is estimated to be worth $42 billion by the end of 2010, based on a study by a London-based market research firm, Informa.

Some telephony operators like Tata Teleservices differ with this gloomy outlook projected for their ilk. Pankaj Sethi, head of VAS at the Tata company, said the situation in India is different. Mobile operators would always remain as a part of the entire mobile eco-system. No one can surpass them. As a mobile user, I may have many channels to download my music but I may not like to travel to a retail point to download. Alsoin my mobile CDMA service, its easy and fast to download music, wall paper and games, said Sethi.The Indian VAS market, which is set to touch around Rs 8,000 crore in the next two years, contributes on an average 6% to the mobile operators revenue.

Every Indian operator would like to have 15% revenue from VAS in the next five years time frame, said Sethi.

The operators have a tough job ahead as more and more stndalone delivery channels open up. But as more delivery channel opens up, the power of the operator to have more revenue sharing with the content and VAS application provider decreases.

Telecom operators get a major share of the total revenues generated from VAS earnings which is nearly 60-75%, says IMI Mobiles Kumar. Cellebrums Agarwal said that in the next two to three years, the operators share could come down to 40-50%. Kumar feels that the pressure on the content providers and aggregators to make their operation viable would force them to struggle with the operators to lower the revenue share. At the same time, Agarwal said the operators would not face a situation where there would be a decline in the total VAS revenue. The total business would grow, and so would the operators revenue.

Some VAS services like SMS, caller tunes and background music that rest on an operators platforms can never be delivered independent of the operator. Bhartis Airtel does not see operators losing any sizeable chunk of VAS revenue given the revenue structure to content providers. Arguing that Indian market resembles the Korean and Japanese mobile market structure more than the European market, they insist that voice would remain an important constituent and so would non-voice services like SMS and ringtones.

Airtel is already offering retail services where the subscribers can choose music or a wallpaper without using the short codes.

And mobile operators are looking at alternatives. We should be prepared to see a change the way VAS works in the Indian market. May be it wont happen in the next one year, but surely in the longer run, said Kumar.