Mobile Value Added Services in India: A Report by Iamai & Etechnology Group@Imrb

Mobile Value Added Services in India
A Report by IAMAI & eTechnology Group@IMRB
December 2006
Mobile VAS in India, December 2006
© Internet & Mobile Association of India (IAMAI), 2006

All rights reserved. No part of this report may be reproduced, either
in part or in full, without the prior permission of
Internet & Mobile Association of India
IAMAI & eTechnology Group@IMRB 2

Table of Content
Mobile Value Added Services in India............................................................................................1

Introduction......................................................................................................................................4
Executive Summary......................................................................................................................... 5
The Indian Mobile Telephony Market.............................................................................................9
The Role of VAS........................................................................................................................... 12
Environmental factors driving VAS......................................................................................................................... 12
Market efforts driving VAS......................................................................................................................................13
VAS- Definition & Market Size................................................................................................... 15
Current Growth & Future Potential for Different VAS................................................................. 16
Perceived & Practical value of Entertainment VAS.................................................................................................18
Perceived & Practical value of Info VAS.................................................................................................................18
Perceived & Practical value of mCommerce............................................................................................................19
The VAS business model ..............................................................................................................20
Content Enablers.......................................................................................................................................................20
Technology Enablers................................................................................................................................................ 22
Revenue Sharing in VAS (except P2P SMS)................................................................................ 23
Revenue sharing arrangement in VAS (except P2P SMS) ......................................................................................23
Revenue sharing in enterprise solution services....................................................................................................... 23
VAS Platforms............................................................................................................................... 25
Operator.................................................................................................................................................................... 26
Challenges to the growth of VAS in India.....................................................................................27
The future of VAS in India ....................................................................................................... 31
About eTechnology Group@IMRB............................................................................................ 32

Introduction
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.

Executive Summary
Need for the study
The mobile subscriber base is growing at a scorching pace in India, India is now the 5th country in
the world to have crossed the 100 million mark in subscriber base and has in the last two months
become the fastest growing mobile market in the world.
As average revenue per user decrease from voice drops, and voice becomes commoditized, Telcos
are increasingly looking at data as an additional revenue stream. The end users have also embraced
VAS and it contributes between 5-10% of the revenues of different Telcos. Thus Mobile VAS has
become an important element in the growth of mobile telephony in India.
Yet it is also equally true that there is little clarity on business issues and growth seems to be driven
by more by inherent market momentum than a concentrated effort on the part of the stakeholders;
differences exist even on basic issues like definition for Mobile VAS.
Thus an understanding into the VAS space is needed to help stakeholders give a direction to this
wave of growth.
This report explores the key issues around the value chain of Mobile VAS in India and
provides a much needed holistic perspective to macro and micro issues in this space. It clearly
defines the constituents of Mobile VAS, examines the environmental factors driving it, and maps
business models, market size and revenue sharing arrangements. The report also goes on to identify
the roadblocks that need to be addressed for the current growth to be sustained.
Methodology
The eTechnology Group@IMRB (specialist technology research unit of IMRB International) &
IAMAI interviewed key stakeholders in the Mobile VAS space for their perspective. The
respondents comprised representatives of a cross section of Telcos, content aggregators, platform
enablers, short code owners & industry experts.
We also analyzed data from industry associations such as COAI & ABTO and other published
reports and used several independent methods to arrive at the industry size and growth estimate for
2007.

Key Findings
The Mobile VAS industry in India is estimated at Rs. 2850 crore at the end of 2006 and is
estimated to grow at 60% to touch Rs. 4560 crores at the end of 2007.
This space is currently completely dominated by entertainment services and comprises of;
P2P SMS -Rs. 1140 crore; Ringtones (including CRBT) - Rs. 1026 crore; P2P & A2P- Rs 428
crore; Games & Data- Rs. 171 crore; Others (MMS etc) - Rs 86 crore.
Game &
Data Others
7% 3%
P2A & A2P
15% P2P
40%
Ringtone
Dow nload
35%
Source: IMRB Research

As the P2P SMS component accrues completely to the Telcos, the remaining 60% (Rs 1710 crore)
is where revenue sharing arrangements exist between content owners/developers & Telcos as
follows;
A ggregator
/
Copyright
Developer
Ow ner
25%
15%
Operator
60%

Thus the Mobile VAS industry in India (excluding Telco share) is currently 24% of Rs. 2850 crore
and is estimated at Rs. 684 Crore in India.

The Road Ahead
We believe that while the mobile VAS space is all set to grow rapidly, all the stakeholders will
have to work together and create a self-sustaining ecosystem for this growth to sustain.
Similarly it would take a joint effort of all concerned to address the significant roadblocks and thus
unlock the true potential of Mobile VAS in India.
The key addressable barriers would be to ensure greater rationality in revenue sharing between
Telcos & content developers; ensure copyright protection, develop higher quality content which
goes beyond Bollywood and cricket and also to have a focused WAP strategy.
We also believe that while pure entertainment service would continue to appeal to the younger
consumers, the overall focus for Mobile VAS would shift to utility based services like location
information & mobile transactions; as security concerns are addressed mobile transactions will also
have a good potential in India.

The Indian Mobile Telephony Market
India is going through a telecom revolution, especially in the wireless telephony segment.
The adoption of mobile telephony remains unparalled in scope, as users from diverse segments
increasingly choose to exercise the option of personal mobility. The user base has been adding 3-
4 million subscribers per month (on an average) and recently the mobile subscriber base crossed
the 100 million mark in April 2006.
The success of the market can be gauged from the fact that mobile user base has surpassed the
PC user base in India and very soon the Indian market will have more mobile users than TV
viewers.
India is rapidly moving towards being an evolved mobility market with no distinction between
market incumbents and challengers.
Growth of Mobile Subscribers
109 114 120

120
96 100 104
100
80
No. of Subscribers (in
60
m n)
40
20
0
March '06 April '06 May '06 June '06 July '06 August '06
Source: COAI & ABTO
The growing intensity of competition has led to more services for the end user at lower prices.
This has had an effect of stimulating demand and thus increasing the category adoption rate. As
more users have been added to the subscriber base, it has led to a further downward pressure on
operator costs. This has led to further cost benefits to the end user, fuelling further growth in the
subscriber base.

The growing subscriber base has also augured well for industry revenues, which have risen
consistently over the last four quarters.
However the other side to this growth is that ARPU’s (Average Revenue per User) have been
correspondingly declining quarter on quarter.
The average industry ARPU has fallen from Rs. 375 for Sept ’05 quarter to Rs. 347 for June 2006
quarter, a fall in ARPU of Rs. 28 per subscriber since Sept ’05 (a decline of 7%)
Revenues & ARPU

Revenue (Rs. Crore) ARPU (Rs.)
6000 5621 380

375 4460 4942
5000 370 370
4010
4000
360
ARPU (Rs.)
Revenue (Rs
3000 356
Crore)
350
2000 347
1000 340
0 330
Sept '05 Qtr Dec '05 Qtr Mar '06 Qtr. Jun '06 Qtr.
Source: COAI
While the decline in ARPU’ has been accelerated by the recent marketing interventions like
lifetime-free schemes; this has been a consistent trend for some time.
It is also a function of the structure of the Indian mobility market. At 80%, the pre-paid segment
completely dominates this Indian mobility market.
Subscribers- Prepaid vs. Postpaid Market Split
Postpaid
20%
Prepaid
80%

Pre-paid has been a good platform on which the market had grown very fast, as it creates a
volume based platform for tariff reduction. Operators have had a strong focus on the pre-paid
segment as the cost of customer acquisition is very low compared to the post-paid segment.
Another reason for the strong focus on customer acquisition has been to up the network
valuations, which are largely assessed based on the number of users on it.
However the flip side is that, customer retention has become very difficult. Loyalties in the pre-
paid segment are low due to the low switching costs and it is not uncommon for user to routinely
change their numbers and service providers. Pre-paid subscribes are also low usage subscribers
who contribute only 25-30% ARPU’s as compared to the post-paid segment. Source: IMRB Research
Another aspect to the mobility market has been the constant decline in the call rates; initially this
reduction has been helpful in further increasing the subscriber base and expanding the Minutes of
Use of the existing base.
However after a point reduction in call rates has been ineffective and minutes of use
(MOU’s) have been inelastic in responding to reduced rates.
Mobility operators in India have been faced with two clear challenges:
(i) To address customer retention in the high churn pre-paid market

(ii) To develop alternative revenue streams as voice has become commoditized and
has ceased to be a tool for differentiation

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.

Personalization of the digital world and digital devices
With increasing pressures and stress on individuality, mobility users also want to carry forward
“That I have It’s My Life s as their individuality to their mobile device. Thus for a large
my ring back tone says a lot number of users the mobile phone has become a truly
about me. It is like a message
for all my callers…“ personal device and VAS has become an extension of
- User, 25, Delhi
persona. The enormous success of Caller Ring Back Tone
(CRBT) is an excellent example which illustrates that users are ready to adapt to any service
which offer them the option of personalization.
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.
Current market size
The current market as of November 2006 for mobile VAS in India is estimated at Rs. 2850
crore.
.
Composition of VAS Revenue
Game & Data Others

7% 3%
P2A & A2P
15% P2P
40%
Ringtone
Download
35%

Mobile VAS in India can be further categorized into the following broad categories:
P2P: Person to Person SMS, the most common form of mobile communication apart from voice
Ringtones: This is inclusive of monotunes, polytunes, truetunes and also includes CRBT (Caller
ring back tones).
P2A & A2P: P2A (Person to Application) SMS inclusive of messages sent by end users for
contests & for seeking other information like news & updates; (A2P)Application to Person SMS
inclusive of service push by enterprise service providers; Also include calls on IVRS for all other
services like astrology
Games & Data: Games include download of one play games offered by Reliance & full play
games offered by other operators; Data include download of wallpapers & logos
Others: Include MMS (Multi Media Messages) & subscription charges for WAP services
Though the mobile subscriber base has grown by over 95% (August 06 over August 05) we
believe that the relative growth in VAS revenues will be lower. As the current focus by mobile
telephony operators is on adding subscribers, many low value users are now entering the category
and are not likely to contribute significantly to the growth of VAS. Overall the growth in 2007
will continue to be driven by Ringtone downloads and by games; the share of games in the
overall pie is also expected to grow.
The current VAS market is expected to grow by 60% for the next year and at the end of
2007 should be close to Rs 4560 crore.
Current Growth & Future Potential for Different VAS
To understand the reasons behind the current popularity and predict the future potential for these
services, we have grouped Mobile VAS into three broad heads, based on the nature of the service
offering.

o 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.
o 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.
o 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.
Perceived & Practical value of Entertainment VAS
Currently entertainment based VAS applications are driving the market both in value and volume
terms. These have a very high perceived value as apart from basic entertainment, these can also
be a means of self expression by the end user. This explains the success of Entertainment VAS
despite the fact that its practical value is minimal.
Entertainment content is dynamic and changes very frequently which keeps the subscriber’s
tastes alive but we feel that unless it is supplemented by innovative applications like CRBT, the
drive will be difficult to sustain.
In India, entertainment VAS is there to stay though we predict a fall in its contribution to the
overall VAS revenue pie in the next 3-4 years. This would happen as other type of services
become more popular and user engagement with entertainment VAS reaches saturation.
Perceived & Practical value of Info VAS

Currently infotainment VAS has moderate practical and perceived value. We feel that this is
mainly because of not very strenuous effort to promote these services and a lack of customization
for the end-user. Currently very few applications are catering to subscriber’s needs. Not many
efforts are being made to develop the market and create awareness about these applications.
However perceived value will increase in the future as new utility applications are developed
catering to different niche segments; like location based services.

Perceived & Practical value of mCommerce
Currently transaction based services are in a very nascent stage in India and are constrained by
both lack of awareness and suitable applications. Both practical and perceived value is low
amongst users. One of the main reasons driving low trials is discomfort with the idea of paying
through the mobile. Users are skeptical regarding transactions on mobile, no stringent policies
and measures are in place to instill a sense of security in the subscriber’s mind. This is acting as a
roadblock in the aggressive focus and investment to increase the perceived security of mobile
payments. Currently there is also a lack of innovative applications which can click with the
subscribers.
We feel that growing eCommerce will also have a positive rub off effect on m commerce
because users will have a higher level of familiarity and comfort with online transactions.
However it will be initially focused on low value transactions and will gradually expand. Over
the medium-long term we expect an exponential rise in the popularity and revenue generated
from these services.
Perceived Vs. Practical Value Matrix

VAS Market 2006 VAS Market 2010
High High
Entertainmen
Infotainment
Entertainment
Perceived
Perceived
Infotainment
mCommerc
Value
Value
mCommerc
Low Low
Low Practical Value High Low Practical Value High
Source: IMRB Research Source: IMRB Research

The VAS business model
The mobile VAS market in India has evolved into a complex ecosystem. There are multiple
entities involved in the value chain but our research reveals that it is still not well defined and lot
of overlapping takes place. A single entity performs one or more roles and several are also
focusing on expanding their existing roles.
The main entities involved in VAS value chain are:
VAS Ecosystem
Request in
Text format/ Server
Subscriber call
Managed
Request
completed
Platform Operator
Subscriber Enabler
Content flow
Portal/
Aggregator
Content flow
Developer/
Owner
Content Enablers
Content Portals/Aggregators/Developers:
At the first level existing portals in the Internet space are providing content to end users. For most
of them, mobile data content offers an additional revenues stream, from a strategic perspective it
also offers an opportunity to leverage the traffic to the portal and generate potential advertising
revenues.

Ringtones & wallpapers are two very popular categories where portals like Indiatimes & Rediff
lead.
On the next level there are a host of large content aggregators. Most of these like Mauj &
Indiagames offer content directly to the end user through their own portal and also provide
content to mobile operators. They perform the twin functions of in-house content development &
also aggregating from other smaller boutiques.
There are also many small pure development entities, as they do not have the technical support to
host content or to negotiate with operators they prefer to provide it to aggregators.
Third Party Copy Right Owner
Most of the rich content in mobile VAS is built around Bollywood movies & music. The
copyright for these are held by production houses or rests with individual artistes. A part of the
revenue is shared as fee with the owners for using the copyright material.
Apart from Ringtone & wallpaper development there is also a growing trend of game
development around popular Bollywood movies, a recent example is a popular game based on the
Hindi movie “Don”.
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.
National level code owners Code

Sony TV 2525
Aaj Tak 2424
Indiatimes 8888
Zee TV 7575
Hungama 4646
Active Media 3636
Rediff 7333
Mauj 7007
Teleshoppe 3456
Technology Partner/Platform Enabler

Technology partner & platform enabler handle software platforms and authoring tools. Platforms
are the backbone of the service providers and allow managing of various entertainment services,
such as games, streaming audio and video and ring tone downloads. Authoring tools are a
necessary component for delivering applications by application developers.
Revenue Sharing in VAS (except P2P SMS)
Revenue sharing arrangement in VAS (except P2P SMS)
Aggregator/
Copyright
Developer
Owner
25%
15%
Operator
60%
Operators typically retain the biggest chunk of revenues. Copyright fee given to content
developer/owner comes from the margin of Content Aggregator or Operator or both. Revenue
sharing arrangement is typically 60% for the operator, 25% for the aggregator and 15% for the
owner. This model is significantly different from evolved market like China where the share
of operator is typically 20-30% in the entire chain and aggregators & owners keep a much
higher share.
Revenue sharing in enterprise solution services

Short Code
Owner
30%
Operator
70%
Enterprise service providers are increasingly using VAS as a marketing and customer
development tool. It is being increasingly used to connect to users through the mobility platform.
Eg. “Tracking of DHL courier through SMS- Send POD number as DHL-XYZ to 3456” The end
user requests for this service by sending an SMS, this is routed through the mobile service
operator to the Short code service provider. The short code provider collects all the information
on the server and passes it to the client (Eg. DHL).
The per unit revenue accrual in this VAS is low (Rs 3/SMS) as compared to other types of VAS,
but it offers two streams of revenues as both the end-user & the enterprise service provider pay
for the VAS. We expect this to grow significantly as enterprises look beyond mass media for
solutions to reach out to their customers. It is also cost effective for the enterprise as it serves
both as a data base development initiative and also leads to cost savings as queries can be handled
through automated response

Amongst enterprise service providers VAS is more popular amongst certain verticals due to their
I immediate amicability to this service.
Top 5 enterprise users

Real estate information
FMCG contests
Cargo and courier tracking
Education/ Career information
Travel services in e-space
VAS Platforms
Every service needs a platform for delivery VAS can be provided to the customers on two
platforms- Data & Voice
Data/Text Platform
The end user sends the service request in an SMS form. The request goes to a server managed by
the Platform enabler on behalf of the operator. The content is arranged by the Operator from the
Content Aggregator who procures it from the Content developer. This content is forwarded to the
Platform enabler who stores it in the server.
The server automatically and instantaneously entertains the request from the customer as all these
VAS are preloaded into the server.
Voice Platform
The end user calls up the service provider and avails of the service. The call is routed to a server
managed by Platform enabler. The server interacts with callers using IVRS (Interactive Voice
Recognition System), gathers information and routes calls to the appropriate recipient. The
remaining chain is same as that of a text based platform.

Per unit voice based VAS generates more revenue than text based VAS as the call charges are
very high at Rs 6/7min and selecting the service normally takes more than a minute. This means
that for the same service voice based will generate several times the revenue over text based
VAS.
As the penetration increases more in rural India, necessity and importance of IVRS will increase
as people will be more comfortable with an interactive voice platform in local language over
selecting options by pressing numbers.
Operator
Challenges to the growth of VAS in India
There are several major challenges which need to be overcome for sustained growth to be initiated. The
major challenges that need the immediate attention of key stakeholders are:
Focus only on youth and entertainment

Usage of VAS has not spread evenly across demographic profile of customers.
Currently the youth segment is driving the VAS market as can be seen from the rapid growth of
Entertainment VAS (mass service) and not so rapid growth of mCommerce and Infotainment
VAS (customized service). In light of this trend the
“Now that the market is stakeholders are also playing safe and concentrating on
maturing, segmentation is the
key.…“ mass services for which content is easily available and
- Leading Operator
chances of failure is less. But this has hampered the
growth of other services which are not getting enough time, effort and investment from the
players.
For the VAS market to bloom fully, applications need to be created for niche segments, as these
are the services which will create real value for the subscribers.
Piracy of Content
Another reasons for players playing safe and not investing in novel applications and content is
becuase this market is greatly affected by piracy This is acting as a barrier for companies
investing into content development.
“If there are ‘X’ number of
legal transactions happening, One of the solutions to increase customer retention is by
almost ‘3X’ pirated versions providing exclusive content to them, however this is
are transacted.…“
- Content Aggregator hampered by piracy. Thus piracy is hurting the operators
both ways, neither can they stop customer churn by
exclusive content development nor can they go in for investment in innovative applications to
spread their demographic reach.

Lack of Infrastructure
There are a lot of services which cannot be introduced in India because of lack of supporting
infrastructure. E.g., Absence of location based VAS. Location based VAS is still not possible due
to the lack of digitized map of India. Applications like live video-sharing are yet to arrive in the
Indian market. In evolved markets like Finland & Korea, a user can shoot his own video and
simultaneously show it to his friend in some other city. This kind of application would take some
time to arrive in India.
To avail of new and high end VAS, technologies like 3G need to be installed. However, 3G
networks are not mere upgrades of 2G networks; rather, entirely new networks need to be built
and frequencies need to be assigned to mobile operators.
Preference for low feature handsets

Though the mobile subscriber base is growing, a large chunk of the market is opting for basic low
feature handsets in spite of the fact that handset prices are coming down. There is a mindset to
purchase the handset for basic utility service which is voice. But these handsets are not in a
position to support a large number of VAS. Since in many VAS like MMS, both the sender and
receiver handsets need to support MMS, the scope of such VAS gets limited.
This is further impeding the introduction of high end VAS. There are many services which are
not performing to their potential despite their usefulness and there are some which cannot even be
introduced.
High cost to the end user

Currently the cost of most VAS is high. This is mainly because of the fact that VAS market is
lead by Entertainment VAS which has a high perceived value. People are paying for it as they
perceive it highly but over a period of time as they get used to it, the willingness to pay high
amounts may come down.

We feel that a market correction in VAS cost to end user will result in higher usage both in terms
of customers and their frequency of usage.
Absence of utility services

These are those services which have a high practical value. But currently due to lack of
familiarity & awareness from the end-usr and lack of investment, effort and marketing from the
supplier’s side is resulting in very few such services being available in India.
Such services mainly fall in the category of mCommerce and to some extent Infotainment.
Customers are also currently not comfortable with mCommerce. As the comfort level increases
which can be brought about by encouraging government action like robust policies, laws etc, we
will see exponential rise in VAS usage. The future belongs to services providing value to the
customer exploiting the mobility factor.
Transparency in revenue sharing
Transparency is a big issue faced by the entities in the Mobile

“This is a highly unregulated
market with no transparency but VAS value chain. The market is highly unregulated and there
still we are going ahead with full
steam..…“ is no transparency in terms of contact payouts and royalties.
- Content Aggregator
There are at least 10 entities involved between customer and
Content Owner (e.g. artist) and the flow of revenue is not transparent. Other entities feel that mobile
operators take a very high share of the overall revenue, this affects the content development market
with lower incentive to the developer to provide higher quality content. The difference is especially
stark when compared to developed markets where pay-outs are well defined and more balanced.
Underdeveloped WAP market
The key issues constraining the development of the WAP market are:
o Lack of WAP enabled handsets & limited incidence of active usage of WAP
o Speed of connectivity which prevents an enriching experience
o Limited customization of existing portals for WAP usage and limited content for WAP access.

WAP usage is extremely limited & currently most operators do not seem to be aggressively focused on
increasing usage. Current user experience with WAP is limited to download of rich content like logos
& games. We feel that extensive WAP usage can take off given the significant growth in the number of
Internet users in India (38 million in Sep 06- Source: IMRB
“The youth have taken to the
Internet and what is available Research). More number of evolved Internet users would be
there should be available on the
mobile..…“ willing to look at accessing the Internet on mobile if
-Leading Operator
appropriate content was available. However the WAP portals
of most operators offer limited content and therefore cannot deliver a meaningful online experience on
the mobile for the end user.
Spam
There are high volumes of spam in the VAS market currently. Spam is an uninvited message
urging the consumer to avail of some service. Example “Bid for a Laptop by messaging your bid
amount to XXXX”
SPAM has a high nuisance value and can discourage users to avail of a genuine service as they
feel that once they have availed of a service & their number becomes a part of a database, their
inbox will be flooded with uninvited messages.
As an industry initiative there is a pressing need to take charge of as it goes against the long term
interest of the industry. Taking cognizance, some operators have already started offering a service
to there subscribers where they can choose not to receive any promotional SMS’s.

The future of VAS in India
In India, VAS will see a lot of structural changes, consolidation and emergence of cutting edge
services:
• Mobile operators will lose prominence in the value chain as the market for Content
Aggregators will consolidate and with their better bargaining power, this will ensure a
revenue shift from Operators to Aggregators in the value chain. The VAS market will
reflect revenue sharing arrangement in markets like China more closely.
60%
80%
60%
Operator share in 30%
40%
the value chain
20%
0%
Current E 2010
• In VAS content, we will see revenue from entertainment VAS come down from the
levels. End users want control and interactivity and therefore the applications to look out
for in future will be user generated content and mCommerce. However mobile gaming
will continue to grow and will contribute a higher share to the VAS pie.
• Regional content is giving a significant boost to the content market especially in the
entertainment category. Regional content is getting popular both in voice and non- voice
services. Players have anticipated the trend and this is leading to regional content
development. With increasing mobility penetration into the heartland of India, significant
VAS revenues will be driven by regional content from B & C class towns.
• Internet on mobile will become a more feasible option as leading players in the internet
content space especially configure their sites for access through mobiles; this would be
further strengthened by the new trend of .mobi domain being set up. Thus GPRS usage
should pick up significantly

About eTechnology Group@IMRB
eTechnology Group (a specialist unit of IMRB International) is a research based consultancy

offering insights into IT, Internet, Telecom & emerging technology space.
In a scenario where even experts are constantly caught by surprise, we have constantly delighted
clients by offering simple solutions to complicated problems. Our continuous link with industry
and a constant eye on the pulse of the consumer ensures that we can decode the movements of
technology markets & consumers. To our clients we offer an understanding of the present and a
roadmap for the future.
DELHI MUMBAI
Vivek Khattar Balendu Shrivastava
eTechnology Group@IMRB eTechnology Group@IMRB
IMRB International IMRB International
8, Balaji Estate, Kalkaji ‘B’ Wing, Mhatre Pen Building
New Delhi - 110019. Senapati Bapat Marg, Mumbai
Tel : (91)-11-42697815 Tel : (91)-22-24323500
Fax: (91)-11-42687801 / 02 Fax: (91)-22-24323900
Email: vivek.khattar@imrbint.com Email: balendu.shrivastava@imrbint.com
BANGALORE CHENNAI
Rajesh Kurup
eTechnology Group@IMRB Rathina Kumar
IMRB International eTechnology Group@IMRB
D-7, Devatha Plaza IMRB International
131, Residency Road 63, Pantheon Road
Bangalore - 560025 Chennai - 600008
Tel : (91)-80-2213186, 2274388, 2274236 Tel : (91)-44-4222 0801 Fax: (91)-44-4222 0900 Email: rathina.k
Fax: (91)-80-22473486
Email: rajesh.kurup@imrbint.com
Analysts for this report:
Balendu Shrivastava : balendu.shrivastava@imrbint.com
Sohil Kunwar: sohil.kunwar@imrbint.com

Published By:
Dr Subho Ray, President, on behalf of Internet and Mobile Association of India,
406 Ready Money Terrace, 167, Dr Annie Beasant Road, Worli, Mumbai 400018

Mobile Value Added Services in India: A Report by Iamai & Etechnology Group@Imrb

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Mobile Value Added Services in India

A Report by IAMAI & eTechnology Group@IMRB

© Internet & Mobile Association of India (IAMAI), 2006

IAMAI & eTechnology Group@IMRB 2

Mobile Value Added Services in India............................................................................................1

IAMAI & eTechnology Group@IMRB 3

IAMAI & eTechnology Group@IMRB 4

Need for the study

IAMAI & eTechnology Group@IMRB 5

Source: IMRB Research

IAMAI & eTechnology Group@IMRB 6

IAMAI & eTechnology Group@IMRB 7

The Road Ahead

IAMAI & eTechnology Group@IMRB 8

The Indian Mobile Telephony Market

Growth of Mobile Subscribers

109 114 120

Source: COAI & ABTO

IAMAI & eTechnology Group@IMRB 9

Revenues & ARPU

6000 5621 380

Subscribers- Prepaid vs. Postpaid Market Split

Source: IMRB Research

IAMAI & eTechnology Group@IMRB 10

(i) To address customer retention in the high churn pre-paid market

IAMAI & eTechnology Group@IMRB 11

The Role of VAS

Environmental factors driving VAS

Increasing comfort levels with basic mobility services

IAMAI & eTechnology Group@IMRB 12

Personalization of the digital world and digital devices

Reduction in call rates & CPP initiation

Market efforts driving VAS

Focus on movies & music

IAMAI & eTechnology Group@IMRB 13

IAMAI & eTechnology Group@IMRB 14

VAS- Definition & Market Size

Current market size

Game & Data Others

Source: IMRB Research

IAMAI & eTechnology Group@IMRB 15

Current Growth & Future Potential for Different VAS

IAMAI & eTechnology Group@IMRB 16

o mCommerce VAS (Transactional services)- mCommerce VAS allow the

IAMAI & eTechnology Group@IMRB 17

Perceived & Practical value of Entertainment VAS

Perceived & Practical value of Info VAS

IAMAI & eTechnology Group@IMRB 18

Perceived Vs. Practical Value Matrix

Low Practical Value High Low Practical Value High

Source: IMRB Research Source: IMRB Research

IAMAI & eTechnology Group@IMRB 19

The VAS business model

IAMAI & eTechnology Group@IMRB 20

Third Party Copy Right Owner

Traditional Media Companies

IAMAI & eTechnology Group@IMRB 21

Short Code Provider

National level code owners Code

Source: IMRB Research

Technology Partner/Platform Enabler

IAMAI & eTechnology Group@IMRB 22

Revenue Sharing in VAS (except P2P SMS)