With the surge of innovative new services for mobile phones, a whole world beyond voice services awaits mobile phone users in India.

Value added services (VAS) refers to all services on mobile phones excepting voice. These services include SMS, games, data access, music, video, m-commerce etc.

The market for mVAS in India is pegged at Rs. 2200-3000 crore (US$ 450-600 million). With the telecom subscriber base having crossed well over 300 million during 2008, India is the fastest growing telecom market in the world. The advent of 3G paving the way for faster and easier access to data and multimedia is definitely going to give an impetus to the growth of the VAS industry. Players are coming up with new and innovative offerings for mobile phones.

The next wave of growth and large amounts of revenues in the mobile telephony segment are expected to come from mVAS. Indeed mVAS applications are set to become the differentiating factors in mobile handsets and may even become the basis for choosing a handset or a telecom connection.

The convergence of the entertainment and telecom industries is expected to drive the growth in this segment. Cricket, bollywood and astrology are some of the top categories for downloads in India. mVAS in India will continue to be driven by entertainment applications.

Mobile music
Digital music (including caller ring back tones – CRBT - and ringtones) constitutes around 35% of VAS revenue. With a penetration rate of around 18%, mobile music has surpassed online music sales in India. Online music makes up less than 5% of India’s digital market, while mobile music constitutes the rest. The International Federation of the Phonographic Industry and the Internet and Mobile Association of India predict that Indian consumers would buy almost nine times more mobile music than any other format by 2009.

Mobile TV
TV service on mobile handsets has a broad market of US$ 360 million in India, according to a survey conducted by Springboard Research. Springboard feels that the market is ripe for launching mobile TV services in India and will have 12 million subscribers within the first year of its launch, which is a penetration level of 5-6% of the total. Easy availability and affordable prices are the critical factors for success of mobile TV in India. Nokia, Spice Telecom, Qualcomm and Samsung, who have launched handsets providing this service are actively promoting its adoption.

Mobile Gaming
Within India’s gaming industry, mobile gaming constitutes 58% of revenues. Mobile gaming is becoming popular in emerging markets like India because it requires lower costs than buying PCs or gaming consoles. The availability of faster processors, 3D graphics and advanced sound capabilities in mobile handsets is driving mobile gaming in the country. Research firm Gartner predicts that mobile gaming revenues will reach US$ 450 million by 2012.

The Indian market for mobile services has traditionally been dominated by voice. But consumers now are looking for more and more in terms of information, entertainment and interactivity from their mobile phones. With 3G services coming to India, the market for mobile value added services (m-VAS) is to see some exciting times ahead, with rising revenues coming from this segment and innovative new mobile applications like games, ring tones, video, social networking, SMS contests, etc. on offer.

Chennai-based Bay Talkitec, a market leader in the VAS segment, is optimistic about the prospects of India’s mobile VAS industry. Convergence Plus spoke to Mr. Sheker, Co Founder & Director, Bay Talkitec about India’s m-VAS segment.

CP: Considering that India has a primarily voice and SMS based market, what kind of services are expected to drive growth in the m-VAS industry?

Mr. Sheker: In an age of convergence, the prominent growth driver of MVAS would be the consumers’ desire of getting more and more from their personal cellular device. While among the youth in India, entertainment service would be popular, consumers would also look out for utility-based services like location information, mobile commerce (m-Commerce) for mobile transactions and Local content rich services. The youth segment that makes up 30% of the total handsets market in India seeks entertainment on mobile. Currently, about 44% of m-VAS revenue in India is driven by short messaging service applications. Youth will continue to drive the market, particularly in the entertainment m-VAS.

Mobile phones have permeated to smaller towns, cities and villages expanding the opportunity for adoption and use of value added services. Expansion of mobile subscriber’s base beyond cities presents a great opportunity to the m-VAS industry to grow. We will see more VAS in data, banking, TV and gaming segments, which improve margins over current SMS VAS. 3G will attract high end users to use more VAS. New age customers will use more value added services in the coming years. The much-anticipated 3G will undoubtedly provide the impetus required to boost this medium with services like mobile TV, full-motion videos, wireless teleconferencing, multi-player online games, and m-commerce gaining popularity and facilitating a wider portfolio of VAS to mobile users.

CP: What can be done to make the playing field more level for the VAS industry, especially in terms of the revenue sharing arrangement, which is dominated by the operators?

Mr. Sheker: The Key issue will be how operators price 3G services. If the prices are high for an average user then the adoption of 3G services will not see its full potential. Another area of concern is content. Unless we have the right content targeting the right audience, 3G services will not see major adoption. This has been the case in most of the mature 3G markets around the world. Major roadblock in providing quality content to the end user has been the availability of bandwidth. Most of the applications are not able to provide the optimum user experience due to bandwidth issue, which makes streaming and downloading practically impossible. A lot in this regards is expected from the deployment of 3G networks in the country. Like any other burgeoning industry, the mobile VAS space has its share of challenges that will iron out with better infrastructure, advanced technologies, more conducive regulations, and well designed structure. In spite of increased demand and lots of new innovations, the Indian VAS industry is facing a lot of roadblocks, the tussle over the entry of 3G technology being one of them. Lack of content localization is also hampering VAS penetration, especially in rural areas. Preferences for basic handsets that do not support MMS is a deterrent as well. Also, 3G promises to be a boon for rural India as well, as it is pitched to revolutionize social and economic development services like e-Governance, tele-education, telemedicine etc. But its effectiveness on ground is a topic of debate as initially 3G services will be launched in the metro and no time frame has been given in terms of the availability of services for rural India. 3G handset price needs to come down for easy adoption in rural markets. The biggest area of concern is the skewed revenue sharing models where the content providers have to make peace with low revenue shares from the operators. B2C has not become popular yet due to ridiculous revenue shares being offered by operators and their "walled garden” approach. Once this becomes better and walled gardens disappear- more and more content companies will launch their B2C offerings thus widening their choice for consumers.

CP: To what extent do you think the advent of 3G in India, can impact the ARPU?

Mr. Sheker: India has emerged as the fastest-growing mobile market in the world, and is expected to continue the growth rate, falling call rates have resulted in major dip in Average Revenues Per User (ARPU) for telecom companies, who are betting big on Value Added Services (VAS) to give a big boost to their ARPU's. From a telecom operator’s point of view, the key reasons for a significant interest in VAS include factors such as augmentation of revenues from customers. In most markets globally the Average revenue Per User (ARPU) is moving south and it is imperative from a profitability perspective that carriers introduce VAS to drive their top line and bottom line. Worldwide, as ARPUs take a steep fall, VAS seems to have become a means for telcos to survive. In India, the ARPU is the lowest in the world, and hence the scope for innovative VAS is immense. Globally, mobile VAS accounts for 25-30% of the total value of what operators generate. In India, the introduction of 3G will lead to a better experience of the service, as high-end 2G users can be migrated and capacities freed. Also, results from the UK and US show that 3G is able to substantially impact the revenue from data and VAS.

CP: What are the key challenges to the VAS industry?

Mr. Sheker: The Indian mobile market is on a threshold of a more mature stage, and the road ahead looks even more promising. India is a challenging market to service, considering the diversity in language and culture across, low literacy ratio combined with fewer people comfortable with English. The problem is information exists in a vacuum. Only the operator can aggregate the data, combine it with information from other applications and its own customer databases and then mine it to produce a comprehensive profile used for the highly accurate targeted mobile advertising, for instance. Advertising though presents a viable way of generating a new revenue stream for VAS players.

Also, with the growing VAS market, new technologies, an increasing number of content providers and the mobile phone network more closely linked to the Internet, there are rising concerns about security, as a single weak link can lead to content loss, unsolicited content delivery, unauthorized access to confidential data and even network failure. Thus, apart from investing in newer product offerings to attract customers, operators are also investing in making their operations secure from such risks.