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Slow Growth: Challenges in VAS adoption
Despite the growth in smartphone usage, 3G data dongles, app stores and mobile internet services, the value-added services (VAS) segment is yet to achieve its full potential in India. To encourage data uptake in the country, it is essential to create a well-developed VAS ecosystem. One of the key impediments to VAS growth has been the disjointed approach of operators and VAS players towards developing a conducive ecosystem. Globally, operators have started acting as pipes with their role being limited to offering their network for transporting the
relevant content from app stores to subscribers. Such a business model is yet to be adopted on a mass scale in India. There has been a gap in the coordination and integration efforts of operators and content providers. Moreover, attempts by companies to provide operator-independent services such as mobile wallets have seen limited penetration. This is evident from the recent withdrawal of Nokia’s device-based wallet services, Nokia Money.
Further, the current VAS market in India is based on the operator-sided revenue sharing model with a 25:75 revenue share in favour of operators, which is in sharp contrast to the global scenario, where the VAS revenue share is 80:20 in favour of content providers.
The segment also faces challenges like lack of local language content, user awareness and regulatory support. Also, non-voice services continue to be perceived as an entertainment medium, though huge opportunities exist in sectors such as health, education, banking and commerce.
A look at the challenges facing the Indian VAS industry…
As mentioned, the revenue distribution between players in the VAS value chain is highly skewed towards operators. In the case of premium or high-usage services, a low revenue share model is profitable for VAS players. However, for new and innovative services, the players should be entitled to a greater share of the revenue. The probability for each application to translate into an instant hit and achieve wide-scale acceptability is limited. Therefore, lower revenue shares discourage innovation in content and application development. Inadequate revenues also imply reduced investments and consequently limited efforts on research and innovation for developing new VAS applications. This is further supported by the fact that there has been no major shift from traditional VAS such as ABCD (astrology, Bollywood, cricket and devotional), caller ringback tones (CRBT), voice portals, IVR and missed call alerts. As a result, the development and uptake of utility-based VAS like mobile payments, education and health care alerts as well as weather updates and commodity price information are yet to gather steam.
Further, the bandwidth being offered by most operators currently does not support high interactive and video-based applications. This has resulted in the limited adoption of these applications. However, while higher bandwidth is necessary for providing a full set of mobile VAS services, uptake also depends on several other factors such as pricing, language, relevance and reach.
The lack of content localisation and regional language offerings is another issue that has impeded VAS adoption in the country. SMS penetration remains largely constrained in rural areas due to the lack of standard solutions to send and receive local language-based text on devices. Also, a higher percentage of mobile subscribers belong to the prepaid segment, where the average wallet size (balance in mobile) for most subscribers is reported to be less than Rs 10. This renders the mobile advertising medium an expensive option as there is hardly any return on investment.
Meanwhile, 3G uptake in the country has not been very overwhelming so far. Consequently, the expected impact of these services on the development of the VAS ecosystem in India has been limited. The underdeveloped device ecosystem has also been a factor impeding substantial VAS uptake. However, the device ecosystem has evolved over the years with the availability of low-cost high-end feature phones and smartphones.
Certain regulatory moves such as the Telecom Regulatory Authority of India’s (TRAI) regulation restricting bulk SMSs have had a negative impact on VAS adoption. Ubiquitous reach is an important factor for ensuring VAS uptake and sending bulk SMSs (OBD and WAP push) is considered the most cost-effective medium to achieve this. Further, the majority of high-ARPU users are registered under the Do-not-Disturb scheme, making it difficult for operators to reach them through bulk SMSs offering VAS.
TRAI’s directive, which makes it mandatory for operators to seek customer consent before activating VAS, has met with unanimous opposition by operators and VAS providers alike. As per the
regulations issued by TRAI in July 2012, operators are required to obtain confirmation from the consumer through an SMS, email, fax or in writing within 24 hours of VAS activation.
Other challenges faced by VAS providers relate to the unregulated market, low transparency in billing, lack of adequate network infrastructure, lack of relevant content, limited consumer awareness and unwillingness to pay for VAS products.
Challenges in m-commerce adoption
m-commerce has emerged as a key trend in the Indian telecom domain. Currently, m-banking is the most popular m-commerce service with over 20 public and private sector banks providing m-banking facilities. The Reserve Bank of India’s directive on financial inclusion, which is encouraging banks and other financial institutions to provide services like mobile wallets, is a key growth driver for the uptake of this service.
However, these services are yet to be adopted on a mass scale. Most of the banking transactions in India continue to be cash and cheque based. Also, low consumer awareness is one of the key reasons for the slow adoption of m-commerce facilities. Educating people about the convenience and economic viability of m-commerce services is a must. Security concerns are the main issue with regard to mobile-based financial transactions. However, m-commerce has tremendous potential in India given the presence of its large unbanked consumer population residing in rural areas.
The way ahead
Currently, revenues from VAS (or non-voice services) contribute 12 to 18 per cent of total operator revenues. The share of this segment is growing steadily and is estimated to reach 25 per cent by 2016. However, the majority of this revenue comes from basic VAS like SMS, ABCD and CRBT. Going forward, the higher uptake of 3G services and commercialisation of 4G services will create significant opportunities to VAS players and content developers to provide high-end services. Also, with the upcoming spectrum auction, issues related to bandwidth constraints will get addressed.
Consumer awareness about VAS is increasing and consequently, a strong subscriber pull is being experienced for such services at the operators’ end. Rather than being content with whatever is being offered to them, consumers are identifying their needs and looking for services accordingly. As a result, it has become imperative for operators to make value additions to their service portfolios and for content developers to create markets where enough choices are available for consumers.
In the coming years, the Indian VAS space is expected to see a partial delinking of VAS players from operators. VAS players have already started focusing on non-operator business coming from verticals such as government, enterprise and machine-to-machine applications. The enterprise vertical offers significant opportunities to VAS players as lower volumes get compensated by the huge market size. Moreover, the availability of the operating system and handset manufacturer application development ecosystem, and app stores is challenging the dominance of operators in the VAS ecosystem, both in terms of customer preference and wallet ownership.
Handset manufacturers are also actively looking at entering the segment by offering relevant content along with phones. In addition to global players such as Apple and Nokia, local manufacturers such as Micromax and Lava are also strengthening their VAS strategies. However, the biggest challenge for domestic manufacturers is in terms of billing of services, which is wholly controlled by the operators. Moreover, Indian consumers are reluctant to use billing options such as online payments for services.The challenges notwithstanding, the VAS segment is expected to grow in India on account of increased service awareness, growth in subscriber base, introduction of 3G/4G services as well as a strong focus on m-commerce.
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