NEW DELHI, INDIA: Until recently, Indian consumers were unaware of value added services (VAS) and telecom players were providing only short messaging services (SMS) as their non-voice offering to the Indian market. Soon we saw a boom in the VAS industry with the growing vitality of the Indian telecom industry. Today, as per V&D100 statistics, VAS or non-voice revenue of mobile operators is 13pc  of the total revenue or `13,026 crore in FY11. Undoubtedly, the 3G launch helped this industry to come out of the shell, which was waiting for recognition.

According to V&D100 estimates, the total VAS industry today stands at `3,527 crore for FY11 of which 60 pc revenue is contributed by the top 10 VAS players of India.

Also read: VAS in 3G era

Despite getting huge recognition and prominence in the telecom industry, Indian VAS players need to shake away a few more crucial bottlenecks to reach a full bloom. The VAS industry also faces challenges like reconciliation issues with operators, delayed payouts from operators, and lack of a common body to offer unified short codes, which work across all operators at the pan-India level.

VAS in India contributes approximately 13 pc of operators' revenues, whereas in other countries its contribution is around 25-30 percent. Therefore we are actually confronting 2 questions: Why is the VAS share so low in India? And, why is the VAS industry not succeeding despite the 3G rollout?

Breaking Away from the Vicious Cycle

Apart from major players like OnMobile, Comviva, IMImobile, Spice Digital, Hungama, etc, the majority of the VAS players seems to have become stuck in a vicious circle even today.

Also read: TRAI seeks views to boost mobile VAS 

Even though the VAS players know their customer's demands, majority of content producers are only producing VAS content that has low cost of production, eg, wall papers, ringtones, astro, or other plain vanilla text based content. Since the content producers get extremely low revenue shares from the mobile operators, hence they are doing so. And, since the mobile operators do not get any specialized content, therefore they give low shares.

The mobile VAS industry needs to work towards building up an ecosystem where in each and every stakeholder should benefit in the value chain process. The time has come to break away from this vicious cycle and convert this process into a value chain.

Today, a typical value chain in the MVAS industry encompasses content creators/providers, mobile advertisers, aggregators, technology enablers, telecom service providers, and end-users or subscribers. Also, it's to be noted here that in the value chain of MVAS, telecom service providers are a very big entity in comparison to the content providers/content aggregators who are basically SMEs.

Since there is no standard format of agreement between the telecom service provider and VASPs for VAS, hence the telecom service providers being the core of the MVAS value chain, usually dominate in finalizing the terms and conditions of the agreement.

The VAS industry in India is at a nascent stage. In the present scenario, there are quite a large number of small and medium sized content aggregators and technology enablers.

Generally, such VAS providers depend on the facilities provided by the telecom operators. Effective cooperation and collaboration among various stakeholders is a key factor to form a healthy value chain of VAS. Looking at the potential of MVAS, there is a need to develop a suitable framework, which will enable consumers to access a variety of VAS, promote entrepreneurship, and at the same time create additional revenue streams for the service providers.

Regulatory Bottlenecks

The VAS market is very thinly regulated and also not clearly defined, which is undoubtedly adding another roadblock to the list. Trai, the regulatory body, has been aware of the issues that are faced by the industry and has recommended many progressive steps for its development in the right direction.

 
Recently, Trai came out with a consultation paper for the regulation of MVAS such as music, news, and mobile internet. In a statement Trai says, “With a view to bring out all the aspects of the relevant issues and to provide a suitable platform for discussion, Trai has initiated this consultation paper suo motu, focusing on the future-looking regulatory framework for provisioning of MVAS.”

Government's plan to license the service and collect revenue share from the VAS players is a motivating step.

In the current scenario, the MVAS providers are not under any regulatory environment. Trai indicated that the lack of an appropriate and effective dispute resolution forum for the MVAS providers results in small SMEs. Hence, the regulatory authority felt that start-up MVAS providers are bearing the brunt of dominating players in the market. If they were to be licensed, they would be able to enjoy the adjudicatory process under the Trai Act as licensees.
While the expectation from the regulator in the industry is increasing, there is also an apprehension that the regulation may impose directions that may become counter-productive to the growth of the VAS industry. This will bring confidence in the MVAS value chain and also improve the reconciliation process in the value chain, thereby facilitate smooth business growth of VAS.

Jatin Ahuluwalia, CEO, vRock Mobile says, “Regulators' latest push to mandate a need to obtain confirmation from the consumer through SMS or email or Fax or in writing within 24 hours of activation of the VAS is the same as your newspaper hawker asking you each month if you want to continue the same newspaper. Mobile subscribers like to have a simple user experience to enjoy their favorite services and content on the fly, which means easy to request for, easy to access for, and easy to consume for.”

Presently, the telecom service providers and VAS providers enter into mutual commercial agreements for provisioning of VAS. These agreements contain various terms and conditions, including the conditions, as to how the revenue generated through the provision of MVAS will be shared between the VAS providers and telecom service providers.

Revenue Sharing: Turning the Tables Around

According to various reports, the telecom service providers typically retain the bulk of the revenue (around up to 60-70%) from MVAS depending on the type of content that is being delivered to the users. The rest of the revenue is shared among copyright owners, content developers, content aggregators, and technology enablers.

This arrangement needs to be changed, as establishment cost for the VAS players is increasing, manpower cost is increasing, and profits are low. On top of this, industry experience short of cash reserves and even local volumes do not give the VAS players enough confidence to grow in a big way.