While value-added services (VAS) traditionally focused on SMS-based applications, the growing penetration of smartphones and 3G service launch have provided a fillip to data applications. Currently, over 27 million smartphones are being used in the Indian market, which has been witnessing about 500 million application downloads per month. Data uptake is expected to increase in the coming years with the falling costs of smartphones and 3G services.
Moreover, with the growing awareness about technologies, consumption patterns are likely to change significantly. Connumers are already looking for relevant, personalised and content-rich services.
Therefore, the VAS landscape is undergoing a change, albeit slowly. The recent acquisition of 51 per cent stake in Bharti Group-owned mobile VAS provider Comviva Technologies by India?s sixth largest software service company, Tech Mahindra, for Rs 2.6 billion, is a step towards consolidation in the VAS value chain. The Bharti Group will hold 20 per cent equity in the new entity, Mahindra Comviva, while Tech Mahindra will hold 51 per cent. The remaining share will be held by private equity investors and employees. Tech Mahindra had earlier acquired Motorola Cyprus?s 19.9 per cent stake in CanvasM, but the recent acquisition will enable it to foray into new service domains like online payments. These acquisitions indicate a trend towards building a data ecosystem in the country. Tech Mahindra will now be able to invest in emerging areas such as networks, mobility, analytics, cloud and security, and focus on establishing a comprehensive value chain.
Currently, application services are offered by service providers directly or by third-party content aggregators/enablers, known as application service and VAS providers. Content/Application owners, aggregators, technology enablers and telecom service providers play different roles in providing application services to end-users. Telecom operators and VAS players have commercial arrangements for providing these services. Under several such arrangements, VAS companies provide the technology platform, which enables users to access content on their handsets or other terminal devices. In most cases, ASPs do not own the content but they have arrangements with content providers/content developers or copyright owners known as content owners. Revenues generated from application services are shared among operators, ASPs and content owners. The revenue share depends on factors such as the nature of technology, type of content and consumer demand.
So far, the revenue share has been skewed towards operators. In fact, from a 25:75 revenue share in favour of operators about three years ago, the ratio has declined to 15:85 in the past couple of years. This scenario is different from that in the global market, where the VAS revenue share is 80:20 in favour of content providers.
Going forward, the scenario in the Indian market will need to change. ?To significantly expand their service offerings, operators need effective partnerships with application developers, service providers and vertical industry experts. These market players must be given a strong business incentive (service revenue sharing and business intelligence sharing) to enter such partnerships. This will enable mobile VAS providers to develop a strong ecosystem, which will expand and diversify their service portfolios,? says Rajesh Razdan, co-founder and director, mCarbon.
Consolidation and partnerships will also allow the existing ASPs to scale up operations, which will enable them to demand a higher revenue share from telecom operators. For instance, the recent acquisition has allowed Tech Mahindra to build a strong relationship with large operator groups and provided it a strong foothold in the global mobility space.
Key trends
Currently, about 50 per cent of VAS revenues are generated from SMS-based services. Other revenue sources from the VAS segment include services related to astrology, Bollywood, cricket, devotional, ringtones and interactive voice response. Utility-based VAS like mobile payments, education and health care alerts, weather updates and commodity price-related information are still at a nascent stage, but are set to take off in the next five years.
The impact of 3G technology is evident from the high data transfer rates over longer distances, efficient bandwidth use, and the launch of map and positioning services as well as multi-player gaming facilities. However, these services are complex and need advanced platforms, which makes it imperative for network VAS companies to efficiently develop the external ecosystem in order to enhance end-user experience. Ensuring this will depend on the transition from a rigid operator-centric network to a dynamic open market, where revenue sharing models are not skewed towards operators.
The VAS industry?s contribution to the Indian telecom market could be increased by providing a supportive regulatory environment, the lack of which is a key growth deterrent.
Emerging regulatory framework
At present, there is no regulatory framework for application services except consumer protection issues which are addressed through the Telecom Regulatory Authority of India?s (TRAI) directives on application services provided by licensed telecom operators. The ASPs are not regulated or licensed, and act as service partners of operators. There is no standard format for agreements and the operators, being at the core of the application service value chain, have a bigger say in finalising the terms and conditions of the arrangements.
Considering the growing market potential for application services following the roll-out of 3G and BWA services, implementation of the National Broadband Plan and migration to next-generation networks, there is a need to develop a forward-looking framework for driving all application service segments including content development and aggregation, and technology platforms. In view of this, TRAI released a set of recommendations for ASPs in May 2012. The following are the key recommendations and their likely impact on the industry:
Licensing for ASPs: There is a need to ensure the entry of only serious players in the application services space, a smoother process for allocation and opening of short codes, protection of consumer interest and compliance with content regulations. This can be achieved by bringing the ASPs under a licensing framework. While most stakeholders have opposed a licensing system, TRAI has supported it through authorisation.
Provisions for application services in existing licences: At present, there is no uniformity with regard to the provision of application services in the licensing conditions for various telecom service providers. There is a need for clearly specifying the scope of application services that can be uniformly applied across licensing frameworks. TRAI has recommended provisions for application services which should be included in the terms and conditions of existing licences as well as in the proposed ones under the unified licensing regime. According to TRAI, the licensee may provide application services and additional facilities in the case of any value addition or upgradation that the technology permits, subject to intimation to the licensor and TRAI about the same. It should also provide the details of provisions made for lawful interception and monitoring of these services or facilities at least 15 days in advance. Further, the licensee cannot provide any other application service which otherwise requires a separate licence.
Allocation of CSCs: In India, common short codes (CSCs) are allotted by telecom service providers, subject to the Department of Telecommunications? guidelines, which mandate the provision of CSCs starting at level five and comprising at least five digits. For any ASP or content provider to have a CSC across the networks of different telecom service providers, it has to approach each operator with a set of CSCs. Usually, the CSC convenient for all telecom service providers is operationalised.
Utility application services: Government services related to health, education, employment, agriculture, police, tax payments, etc. can be provided through mobile handsets. However, initiatives to provide these services using mobile applications have been limited. So far, language barriers have been a major challenge for the promotion of these services. Therefore, TRAI has recommended that the development of application services in Indian regional languages should be encouraged through incentives.
However, the implementation of these recommendations will take time given the multiple stakeholders involved and impacted by these norms.
For instance, TRAI, through a set of regulations issued in July 2011, had directed operators to seek the consent of subscribers before activating any VAS. The operators were supposed to obtain confirmation from consumers through SMS, e-mail, fax or in writing within 24 hours of the activation of the VAS. Also, service providers had to inform consumers about the renewal of a VAS through SMS at least three days before the subscription period ended. However, operators are yet to fully comply with these rules.
Recently, both GSM and CDMA operators along with their associations filed petitions against the regulations related to the procedures for providing VAS with the Telecom Disputes Settlement and Appellate Tribunal (TDSAT). The state-owned Bharat Sanchar Nigam Limited has also filed a petition against the regulation with TDSAT. According to operators, these regulations are beyond the quality of service norms and licence conditions and ?actually in conflict with the statutory duty and functions of TRAI?.
?It is very important to ensure that customers are able to access and enjoy the services they want, and benefit from innovations. At the same time, all players in the ecosystem need to follow fair practices to ensure customer satisfaction,? says Inderpal S. Mumick, chief executive officer and founder, Kirusa, Inc., a VAS provider.
Conclusion
Going forward, with the introduction of smartphones and robust 3G and 4G networks, new data-intensive services including messaging, social media, photo and video services, live streaming, m-banking, mapping, cloud storage, desktop class web browsing, and mobile payments will witness significant uptake in the Indian market. However, the emerging regulatory framework will be a key factor impacting this growth.
