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VAS-Value Added Services
Mobile phones today have moved beyond their fundamental role of communications and have graduated to become an extension of the persona of the user. We are witnessing an era when users buy mobile phones not just to be in touch, but to express themselves, their attitude, feelings & interests.

Customers continuously want more from their phone. They use their cellular phones to play games, read news headlines, surf the Internet, keep a tab on astrology, and listen to music, make others listen to their music, or check their bank balance.

Thus, there exists a vast world beyond voice that needs to be explored and tapped and the entire cellular industry is heading towards it to provide innovative options to their customers. Spoilt by choice, the mobile phone subscribers are beginning to choose their operators on the basis of the value added services they offer. The increased importance of VAS has also made content developers burn the midnight oil to come up with better and newer concepts and services.

To understand that where this industry is at present and where it is headed, IAMAI and IMRB International have jointly prepared the Mobile VAS Report to focus back stage and uncover the trends in the cellular industry, current market status, value chain, competition, market dynamics & expected roadblocks.

This is the first publicly available study on Mobile VAS in India and the insights provided herein can be used by both the mobile operators and the content providers to better address the needs of their customers. A timely and strategic action would help nurture the mobile VAS market in India.

The Role of VAS

This is where the role of VAS (Value Added Services) comes into focus. Operators are facing cutthroat competition and with the call rates in India being one of the cheapest in the world, the margins are very low. Therefore they are looking at VAS as the next wave for growth. It has become the flywheel of telecom growth and a large chunk of revenue for operators is likely to come from VAS services in the years to come. But it is not only effort from operators which is driving the growth of VAS, there are other factors contributing to it.

The growth of VAS in India has been helped both by macro level environmental factors and specific market initiatives to develop this category.
Environmental factors driving VAS

Booming economy

India has maintained its position as the second-fastest growing major economy after China, as rising consumer and government spending taking place. Consumption and infrastructure spending are driving the growth. This booming economy has created job opportunities and increased the spending power of an average Indian. This has resulted in higher disposable incomes and faster acceptance of new technologies with a willingness to spend for them.

Increasing comfort levels with basic mobility services There is now a critical mass of users in the Indian mobile telephony market who are experienced mobility users. These users are very comfortable in using their phones and want to exercise the option of doing more on them beyond basic voice applications. The first phase of growth for VAS has come in from these converts; and these users will continue to drive the market and evolve into more advanced applications. At the same time the basic VAS applications will also continue to appeal to the new mobility category initiates.

Reduction in call rates & CPP initiation

CPP (Calling Party Pays) was an important initiative which unshackled the mobility market and allowed many more subscribers to enter the mobility category. This initiative, in conjunction with the gradual reduction in call rates has ensured that the expenditure on voice for a typical user has gone down over the years. As a result more users have become comfortable in spending on VAS as it does not significantly impact their overall outlay on mobility.

Market efforts driving VAS For the operators, success of VAS has become important for their growth. This has led to a sharp focus on marketing & tie-ups and a somewhat limited focus on development of content. Most operators are now trying to innovate in their VAS offerings and create sharper differentiation for their offerings.

Focus on movies & music Movies & Music are the passion of India. Most of the rich content available to the end users revolves around these two, with Ringtones of popular Bollywood songs, Wallpapers of movie leads and games developed around movie themes. Given that Youth account for a large segment of users & also dominate the pre-paid category, the focus on entertainment has been a strong hook to develop the VAS category and operators & content aggregators have been sharply focused in their efforts to pluck this low hanging fruit.

It has been helpful that the film industry in India is very prolific and there are endless options to develop content around

SMS contests

Television is another culturally entrenched constant in the life of the average Indian. Typically TV viewing has been a passive affair, however following the global trend TV channels have been focused on making programming interactive. Thus programs, especially music & contest shows have started giving the option to their viewers to participate through SMS.

A popular show like Kaun Banega Crorepati (KBC) generated 58 million SMS over a 3 month period.

These shows have also been a key driver in increasing familiarity with basic SMS for traditional low user segments like non-working women.

VAS- Definition & Market Size

Mobile value-added services (VAS) are those services that are not part of the basic voice offer and are availed off separately by the end user. They are used as a tool for differentiation and allow the mobile operators to develop another stream of revenue.

The nature of value added services change over time. A VAS may become commoditized and becomes so common place and widely used that it no longer provides meaningful differentiation on a relative basis.

For example several mobility operators & other stakeholders in the industry no longer consider P2P SMS as a form of VAS. However for the purpose of estimating the market size we have taken P2P into account, though we also feel that P2P SMS is ceasing to be a meaningful tool for service differentiation.

Entertainment VAS

Entertainment VAS is designed for mass appeal and extensive usage. These provide entertainment for leisure time usage. An example of these kind of services are Jokes, Bollywood Ringtones & games. These services are currently very popular and are driving the revenues for the Indian mobile VAS market.

Info VAS

These are the services which provide useful information to the end user. The user interest comes in from the personal component of the content. E.g. Information on movie tickets, news, banking account etc. These also include productivity services like missed call information which brings back lost business opportunity for the operators. They also include user request for information on other product categories like real-estate, education etc.

mCommerce VAS (Transactional services)

mCommerce VAS allow the use to conduct a transaction using the mobile phone. These services are in a very nascent phase and are not really available to most users.

An example of these kind of service are buying railway tickets or movie tickets through the mobile phone.

The revenue generation and popularity of these three types of VAS revolves around 2 factors: Perceived Value - Perceived value of a VAS depends on perceived rather than the actual utility to the end user. When the immediate benefit may not be clear to the subscriber, the value that a subscriber derives from it largely depends on the marketing efforts and persona related to the service. The value is gauged more from the intangible benefits derived from the service like
emotional benefits.

A good example of a VAS with high perceived value is CRBT (Caller Ring Back Tone). Practical Value - Practical value is completely based on tangible benefits derived from the service. The benefits considered could be based on convenience & saving of time and money.
E.g. Service availed to get the cheapest air fares available.

These three categories of VAS provide a unique combination of perceived and practical values for every user and this may change over time as the market & users evolve. To understand the growth of the different types of VAS and their future growth, they have been analyzed on both of the above mentioned factors.
Traditional Media Companies

Following the global trend most traditional media companies are also trying to bring the feature of interactivity into their media. As we have discussed in the first part, SMS contests have been a very successful way for TV channels to achieve this.

However using this feature involved revenue sharing with several entities, so to generate cost efficiencies over the long run, some media houses have expanded and acquired Short Codes for their own brands. Prominent amongst them are Sony TV, Aaaj Tak & Zee TV. HT Media is a relatively new entrant in this space and has also acquired a short code.

Technology Enablers

Short Code Provider

These are the companies who own a short code (e.g. 8888, 3456 etc) which is sold to a third party client for some keyword and a specific period. They have a tie up with multiple operators to ensure customers of all operators send the SMS to the same number.

e.g. if Star wants to get participants for a TV show, it can advertise “Type ‘X’ on your mobile phones and send to 3456” .The server at destination 3456 would identify the message with the keyword ‘X’ and route it to Star. There are around 10 national level players and several regional players in this domain

The entry barrier is very high because of high initial deposit and need to tie up with each operator for each individual circle. Our research reveals that most operators also ask for a deposit of Rs 2 million and a minimum guaranteed volume of half a million SMS per month for entering into an arrangement with a Short Code owner.

Traditional Media Companies

Following the global trend most traditional media companies are also trying to bring the feature of interactivity into their media. As we have discussed in the first part, SMS contests have been a very successful way for TV channels to achieve this.

However using this feature involved revenue sharing with several entities, so to generate cost efficiencies over the long run, some media houses have expanded and acquired Short Codes for their own brands. Prominent amongst them are Sony TV, Aaaj Tak & Zee TV. HT Media is a relatively new entrant in this space and has also acquired a short code.

Technology Enablers

Short Code Provider

These are the companies who own a short code (e.g. 8888, 3456 etc) which is sold to a third party client for some keyword and a specific period. They have a tie up with multiple operators to ensure customers of all operators send the SMS to the same number.

e.g. if Star wants to get participants for a TV show, it can advertise “Type ‘X’ on your mobile phones and send to 3456” .The server at destination 3456 would identify the message with the keyword ‘X’ and route it to Star. There are around 10 national level players and several regional players in this domain.

VAS-Value Added Services