IAMAI - AML Mobile VAS Report - Slides - 2011-07

Evolution of Mobile VAS in India

Imperatives for Exponential Growth

July 2011 | A joint report by IAMAI and Analysys Mason

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FOREWORD

Dear Reader,
We are delighted to present to you this comprehensive report on the The present version of the report contextualizes the primary question:
past, present and future of that enigma which is known as the mobile “What should be done in order for the industry to move ahead?” in the
value added services industry in India. In the enclosed pages, we light of “what has been in the past and what can be in the future”. So the
have attempted to lay bare before you the story of the genesis and focus essentially is on urging stakeholders to collaborate in charting the
evolution of this industry, the roadblocks that it faces, and the path forward for the industry. And, in attempting to do so, we have
opportunities that it presents to all stakeholders. More importantly, we suggested “a particular” way that we believe will be acceptable to all
have taken much pain to suggest a practical way to put this industry stakeholders. The larger appeal here, obviously, is a call for collective
on a virtuous cycle to ensure sustainable progress and to identify the and effective action since this industry cannot flower with an attitude of
areas that will truly see tremendous growth. “more of the same” any longer.
You will appreciate that such a “first of its kind” report cannot be the With this report we have set our best foot forward with the best interests
work of a single group. It is collective effort, and we have benefitted of the industry and users, and we sincerely hope you will appreciate the
from detailed conversations with and feedback from more than 50 direction that has been outlined.
stakeholder organizations including telecom operators, government
agencies, mobile value added services companies, handset OEMs,
applications developers and, last but not the least, users. We would
like to acknowledge our gratitude to all of them. Thank You.
We should also clarify that what you see before you is a “distilled”
version of the much larger report that Analysys Mason and IAMAI
have been working on for more than six months. The larger and much
more detailed report is prepared almost as a step by step guide to
each of the specific sub-segments within the mobile value added Dr. Subho Ray
services ecosystem. In case you are serious about harnessing the President
data and services opportunity that the telecom industry presents Internet and Mobile Association of India
today, the larger report can be suggested as “essential reading”.
Kunal Bajaj
Partner and Director India
Analysys Mason

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List of Sponsors

Platinum Sponsor

Gold Sponsors

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Peer Review / Acknowledgements

• Peer Review Steering Committee
We would like to thank the peer review steering committee for dedicating their time to this initiative and helping to
identify the key issues to focus on. Producing this report would not have been possible without their inputs and
feedback
 Parag Kar VP, Government Affairs, Qualcomm (India & South Asia)
 PG Ponnapa Chief Executive Officer- India/Asia Pac, MPortal
 Sanjay K Goyal Founder & CEO, ACL Wireless
 Dr. Subho Ray President, IAMAI
 Vijay Shekhar Sharma Chairman & MD, One97

• Acknowledgements
We would like to acknowledge the following people for their extraordinary contributions
 Anand Virani Business Development Lead, Services Ecosystem, Qualcomm (India & South Asia)
 Chirag Jain Vice President - Marketing & Business Development, Webaroo
 Mohit Narain Business Director, ACL Wireless
 Rakesh Mahajan Independent Consultant

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Executive Summary [1/5]

1. The Indian non-voice market is at an inflexion point, As in other mobile-first markets with no legacy infrastructure for
and the growth opportunity remains significant internet access, the growth in non-voice revenues in India will
be primarily driven by mobile data access. The mix of devices
We believe that access to relatively higher speed data on (handsets, dongles and other connected computing devices)
HSPA, EVDO and LTE networks, and a renewed focus of driving this market growth will depend on the economics and
carriers on the mobile data opportunity will help drive growth in maturity of the underlying technologies (HSPA, EVDO and
the Indian non-voice market in the immediate future. We see LTE). In contrast to growth in the data market, we believe that
the foundational elements for such an inflexion point falling in the share of traditional services will begin to stabilize or decline
place with improving data access speed, increasing penetration due to multiple demand and supply side constraints. We
of smartphones and feature-phones as well as increasing believe that SMS penetration will begin to stabilize unless
maturity of the content ecosystem. The opportunity for growth of issues around local language on handsets is resolved, while
non-voice revenues in India remains significant, as has been CRBT penetration will stagnate primarily due to the inability of
witnessed in multiple other emerging markets, especially after carriers to drop prices significantly combined with the limited
the introduction of 3G. However, unlike most other markets, purchasing power of incremental users
India will be a mobile-first market with the latent demand for
mobile data being fulfilled by internet access through mobile 3. However, various market and policy enablers are
handsets, tablets and other forms of CCDs (connected
required in on-deck VAS, off-deck VAS and SMS
computing devices)
channels to realize this growth opportunity

2. Similar to other mobile-first markets, mobile internet As in any rapidly growing ecosystem, there exist operational
(handset plus dongles / CCDs) will drive growth in issues which limit market efficiency and consumer welfare. For
non-voice revenues while traditional services stabilize the on-deck MVAS delivery model, the issues are centered
around the absence of a governing body to address operational
issues such as

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MIS reconciliation and dispute resolution. The issues affecting monitoring MIS reconciliation and similar such operational
the off-deck VAS delivery model are structural in nature, with issues is not feasible. In such a market construct, self-
the low penetration of financial instruments such as credit & regulation involving all ecosystem participants has been an
debit cards resulting in the carrier being the predominant effective means of addressing contractual issues and
means of reaching and billing mobile subscribers. In addition, commitments, as can be seen for the advertising market in
there are operational issues around interoperability, with D2C India through the establishment of a body such as the ASCI
providers required to negotiate bilateral agreements and (Advertising Standards Council of India). We propose that such
system integration with individual carriers. Similarly, for the an industry council should have members from the carrier
SMS channel, absence of handsets with a common local industry associations such as COAI and AUSPI, mobile VAS
language standard limits the penetration of SMS, which in turn provider organizations and other stakeholders as
limits the reach of mobile enabled services to the mass market, representatives on a governing board. The members of this
including for services like education and health. For the rapid council will include carriers, handset OEMs, technology
growth of the mobile VAS ecosystem in India, these issues platform providers as well as MVAS providers. This board can
need resolution, either through market mechanisms or by draft guidelines for MIS reconciliation between mobile VAS
regulatory intervention providers and carriers to protect the interests of all parties, and
can also act as a forum for grievance redressal, and could
issue directives for action
4. From a market perspective, a self-regulating body for
settling issues between market participants can be an
effective way to address on-deck challenges 5. From a policy perspective, we believe that following a
model of market determined revenue share with no
For commercial agreements between carriers, who are licensed special VAS license is the best route
entities, and mobile VAS providers, who are non-licensed
entities, regulatory intervention for Multiple models for potentially regulating mobile VAS providers,
including bringing them under a licensing

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framework were evaluated. In the scenario of a licensed mobile commercial terms with individual carriers and then follow that
VAS provider, the regulator can potentially regulate revenue with system integration before being able to offer a uniformly
shares and other interconnection agreements between the accessible service by consumers across carriers. In addition, in
carrier and MVAS providers. However, an evaluation of the a majority of the cases, the carrier has a strong influence in
pros and cons of the licensing model suggests that it will result determining the end user pricing of the D2C service to preempt
in significant operational and financial overheads on MVASPs, cannibalization of its own offerings. Such a model inherently
without the equivalent upside. We also note that even in other limits consumer choice, and also creates a significant barrier to
emerging markets that have witnessed growth in non-voice the growth of the D2C ecosystem
revenues, there is no precedent of licensing of MVASPs.
Additionally, if revenue shares are regulated through setting a We recommend that TRAI should establish a Central Short
floor, the incentive for MVASPs to innovate to target higher Code (CSC) agency as a licensed entity to be governed by
revenue shares gets significantly impacted. We therefore them. Licensing of the CSC agency will allow it to enter into
propose that the MVASPs may be kept outside the licensing agreements with other licensed entities (cellular service
framework and revenue shares should remain market providers). The CSC agency will issue the short code to an
determined and competitive MVASP (at a predetermined price), and will communicate the
same to all UASL licensees. The carriers will then have to
process the activation of these short codes in a pre-defined
6. We recommend establishing an agency under the
timeframe, across all circles. This framework can potentially
direction of TRAI to help address off-deck adoption dictate the pricing of off-deck enablers (access, hosting and
issues and facilitate the allocation and management billing) using a modular approach to the different components
of a central short code registry system involved, allowing VAS providers to choose the access services
that they need. The formulation of a “rate card” for the services
In the current market structure for short codes and premium provided by the carriers can be done by TRAI under the
numbers, a D2C provider needs to negotiate interconnection regime in consultation with carriers

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through an acceptable methodology (e.g. on a cost plus basis) service providers such as handset OEMs, new revenue models
such as ad-support as well as a shift in the level of control by
various participants. With increasing adoption of mobile
7. It is also recommended that a common standard for
internet, handset OEMs have been exploring opportunities to
local language characters should be mandated on all offer D2C services and applications through application stores
handsets sold in India to facilitate growth in SMS as well as retail channels (mobile banking). In parallel, faced
with increasing competition in the voice market, carriers have
Since incremental mobile subscribers are coming from semi been exerting their control over the mobile VAS value chain to
urban and rural areas, there is a demand for Indian language reduce operating expenses. Some of these initiatives include
support on handsets. Various encoding schemes and other integrating VAS platforms into the core network, and
mechanisms are currently in use for sharing local language significantly diluting the role of technology platform providers.
content, but there are interoperability issues across devices. This is in turn putting pressure on technology providers to
We propose mandating a standard like the one developed by introduce new variants of traditional services such as CRBT, as
CeWIT for local language support on device, as well as well as integrate backward to increase their share of the carrier
mandating the incorporation of this standard on all handsets spend on VAS. Initiatives to foster growth of the D2C
sold in India ecosystem will help maintain market efficiency by introducing
further competition and incentivizing innovation
8. Resolution of above issues also becomes imperative
for maintaining market efficiency and balance of 9. Among the emerging services, we believe that mobile
power in the evolving VAS value chain commerce and utility services will have a significant
social impact
The VAS value chain has become significantly complex over
the last few years, with the emergence of new There have been multiple pilots and stakeholder initiatives for
driving adoption of utility services which

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can provide a scalable, technology enabled solution to existing Video has long been hailed as the potential „killer application‟
issues around access to information, opportunity and on 3G networks, with global 3G carriers offering a portfolio of
infrastructure. With the increasing availability of quality data video based services. However, with limited spectrum
access and better devices, there is an opportunity for service allocation in India, we believe that data intensive video
providers to enhance the quality and deepen the penetration of applications will remain muted. On the other hand, we believe
these services in urban as well as rural areas. Among these that penetration of mobile data access in conjunction with rising
services, the most valuable will be services providing a sales of smartphones and feature-phones will enable the
replacement to infrastructure, such as mobile-health, mobile- growth of a vibrant applications ecosystem. This will also
education and mobile-banking. We believe that carriers are well include social networking and community applications, either as
positioned to make a substantial social impact by leveraging an extension of their online avatars or customized for a mobile-
their retail distribution reach and offering banking, payments first user base. Some of the business applications will allow
and domestic remittance services for the urban and rural poor. enterprises to m-enable their field force and harness the
The only limiting factor in driving the adoption of utility as well benefits of faster turn-around time and reduced working capital.
as financial inclusion services is the multiple stakeholder Finally, data and smartphone adoption will also substantially
partnerships required by carriers in developing the market improve users‟ gaming experience and hence adoption, and
ecosystem, which necessitates significant effort and time, and also foster new business and monetization models for mobile
sometime reduces speed-to-market for some of these services music

10. Finally, we believe that mobile internet adoption will
result in a proliferation of data enabled services and
applications around video, advertising, community,
entertainment and enterprise mobility

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Contents

The Indian Mobile VAS Opportunity 10

Policy and Market Enablers 16

Key Trends in the Mobile VAS Industry in India 39

Key Growth Areas: Services and Applications 47

Forecasts 110

Annexure: Sponsors‟ Profiles 120

Annexure: Company Profiles 129

Global Experience 11

Global experience suggests that share of non voice revenues grows
rapidly with introduction of 3G, especially in markets with a high PC &
internet base
Share of Non-Voice Revenues1 by Carrier, Country (%)

1 Messaging Driven Market
60%
• Messaging dominant markets with
high base of non-voice revenues
• Philippines
45%

High Growth post 3G
2 • Markets that have witnessed an
30% average change3 of ~4% per year
China: ~4.8%, since 3G
28.2%
• Malaysia, Brazil
Malaysia: 21.8%,
15% 64.1%
Moderate Growth post 3G
Brazil: ~16%, 3
45.0% • Markets that have witnessed an
S Africa: 8.2%,
0% 8.7% average change3 of ~2.5% per year
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 since 3G
2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010
• S Africa, Indonesia, Thailand & China
China 4
Unicom, China Vivo, Brazil Globe, Philippines
Smart, Philippines 5 Maxis, Malaysia AIS, Thailand
Telkomsel, Indonesia MTN, South Africa Vodacom, South Africa 6

Launch of 3G Services Legend2: Country: PC Penetration, Internet Penetration

Note: 1. Non-voice revenues includes revenue from messaging, data usage and other non voice related activities; 2. PC penetration figures are
for 2005 and Internet Penetration figures are as of 2006; 3. Average yearly change in share of non voice revenues (within total revenues);
4. China Unicom was considered rather than China Mobile, because the latter launched 3G with TD-SCDMA while the former did so
with W-CDMA / HSPA; 5. Smart launched 3G services in Q1‟06; 6. Vodacom launched 3G services in Q4‟04
Source: Analysys Mason, © Wireless Intelligence 2011, Telegeography

Global Experience 12

There appears to be a latent demand for connectivity in markets with low
PC / internet base, which gets fulfilled by mobile internet

Trend of Non-Voice Revenue and Mix
(Messaging vs. Data and Others)
Market Trend

• Markets such as South Africa
% of Non Low PC and
– Voice 30.4% 33.6% 12.1% 19.4% 28.0% 30.0% 14.2% 23.4%
and Indonesia have a low PC /
internet base
Revenue internet base and are
(South
11% 12% witnessing significant growth
Africa,
of mobile internet within non
37% Indonesia)
44% voice revenues
56% 35%
62%
52% 76% • Markets such as Brazil which
91% witnessed a late launch of 3G
Recent 3G are also witnessing significant
launch growth of mobile internet
63% (Brazil) within non voice revenues
53% 56%
38% 44% (~16% growth in share yoy for
37%
24% Vivo)
9%
Q1 2009 Q3 2009 Q1 2009 Q2 2010 Q1 2009 Q1 2010 Q1 2009 Q2 2010
• Given the limited PC / internet
Maxis Vivo Telekomsel1 Vodacom penetration as well as the late launch of
3G, India might also be expected to
Data Messaging Others
witness the emergence of mobile data as
the dominant channel

Note: 1. For Telekomsel – some share of other VAS included within data;
Source: Analysys Mason, © Wireless Intelligence 2011, Industry Inputs

Mobile VAS Overview 13

Recent trends in structural enablers in the market indicate that the MVAS
industry in India is nearing an inflexion point

Share of GPRS Enabled Handsets DEVICE The Indian Music Industry CONTENT
in Total Handset Sales Revenues by Component (2010)
• The device landscape in India • There is a much wider variety
has changed significantly with of VAS content and services
65% the entry of local Indian 10% Others available to the Indian user
handset OEMs Digital today and carriers have
Music become significant
51% • Data enabled devices (both 41% distribution partners
GPRS and 3G) now constitute
~70-80% of the installed Physical • App stores with inventories
handset base Music into the millions across
49% multiple categories and
2009 2010 genres are being launched by
most carriers, handset OEMs
and third party stores

ACCESS Active Mobile Data (GPRS) DEMAND
Data (2.5G) Plan Tariffs (INR)1
• Mobile data is now widely Users in India • The complete ecosystem
accessible with carriers across devices, access and
75
launching 3G services across content is resulting in
450 their circles of operations growing demand from
consumers for mobile
• Low service pricing and the 30 internet services
development of innovative
90
business models such as
1
sachet pricing and pay-per-
2008 2010 site are encouraging CY2008 CY2010
Note: 1. Estimated price for entry level plan with
penetration of data services
unlimited monthly data usage adoption within users

Source: Analysys Mason, FICCI Frames 2010, Company Reports


Unlike the wireless voice market, non-voice has been slower to grow in
India, as compared to many other emerging markets

Share of Non-Voice Revenues1 for Select
Carriers in Emerging Markets Mobile VAS in India

• Though there have been many rounds
of VC / PE investments in mobile VAS
60% Limited
companies, only a few companies have
Investment
achieved scale and gone for public
Globe, Philippines offering
50%
• End user price for VAS has remained
Affordability more or less flat over the past few years,
40% due to low level of competition
Maxis, Malaysia
Telekomsel, • Carrier marketing is the primary channel
30% Indonesia for creating awareness of VAS offerings
China Mobile, China
Awareness • Individual participants do not have the
20% resources to market their own
Vodacom, South Africa products/offerings
Idea, India
Airtel, India
10%
Vodafone, India
• No dispute settlement mechanism
available to VAS providers for issues in
MIS reconciliation, etc.
0% Transparency
Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010
• Consumers wary of using mobile VAS
as charges for short codes / mobile
internet are not well defined

Note: 1. Non-voice revenues includes revenue from messaging, data usage and other non voice related activities
Source: Analysys Mason, © Wireless Intelligence 2011


With the right policy & market enablers in place, MVAS can reach INR 671
bn, contributing 31% of total wireless telecom revenues in India

Mobile VAS Market Potential (INR bn) • Growth will largely be driven by India emerging
2010 – 2015 as a „mobile-first‟ market – with the mobile
becoming the primary means of access to the
Internet for a large section of the population
31% 31%
 Mobile data is expected to account for 54% of total
27%
MVAS contribution by 2015, as the single largest
contributor
22%

18%
• As an INR 671 bn industry, MVAS also has the
16% potential to have multiple second order impact
on areas such as entrepreneurship and
671
603 employment
480
368 • However, this growth is currently constrained by
291 multiple policy and market inefficiencies
213

• While various views exist on what the potential
2010 2011 2012 2013 2014 2015 solutions could be, we strive to understand the
key constraints in ecosystem development and
VAS Revenue (INR bn)
thus evaluate and identify the key enablers
MVAS Share of Total Revenue
required across policy and market mechanisms
to achieve this potential

Source: Analysys Mason, Industry Inputs

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Contents

The Indian Mobile VAS Opportunity 10

Policy and Market Enablers 16

Key Trends in the Mobile VAS Industry in India 39

Key Growth Areas: Services and Applications 47

Forecasts 110

Annexure: Sponsors‟ Profiles 120

Annexure: Company Profiles 129

Mobile VAS: Challenges 17

The three primary reasons for the limited growth in VAS are the lack of
alternate billing mechanisms, market inefficiency and lack of local
language support across devices
Key Issues First Order Impact Second Order Impact

Challenges for On-Deck VAS1
• Market inefficiencies resulting in Affordability: Price points for VAS
perceived scalability constraints for remains flat, due to lack of
1. Carrier control VAS providers competitive offerings
2. MIS reconciliation • Focus of platform providers shifting to
international markets to drive higher
3. Dispute redressal
revenue from their offerings
Ecosystem Evolution: Lack of
innovative product and service
Challenges for Off-Deck VAS2
• Perceived scalability and profitability offerings, with VAS providers
constraints for D2C models, due to
focusing on mass market services
1. Lack of alternate payment channels high % of billing share, and lack of
alternate billing models
2. No control over end user pricing
3. Skewed revenue shares when
• Companies focusing on basic mass Consumer Welfare: Lack of
market offerings which can drive
using carrier billing consumer interest protection, with no
volumes in alignment with carriers
clarity on data charges and pricing
for SMS/calls to short codes

Challenges for SMS adoption
• Addressable base of SMS limited,
with only 47% penetration
Investments for Scalability: Limited
1. Limited understanding of English /
Roman characters
• Mobile marketing / advertising on investment in this sector due to
SMS also constrained perceived risk around carrier control
on revenue shares and billing

Note: 1. On-Deck VAS: Value added services which are available through the carrier; 2. Off-Deck VAS: Value added services which are
available through D2C models

Mobile VAS: On-Deck Providers (Challenges) 18

Challenges in the on-deck MVAS space are primarily due to MIS
reconciliation irregularities and the absence of a dispute redressal system
On-Deck VAS

Impact of these issues
• Carriers have the dominant
Controlled
Revenue
position when negotiating revenue • Carriers provide marketing support, billing and
Shares shares, resulting in a high level of customer service, and therefore command
uncertainty for the VAS providers higher revenue shares than in other markets

• VAS providers have very little negotiating
power because carriers control access to their
subscribers. While carriers do reward
• Lack of a standard MIS innovative services with a higher revenue
MIS reconciliation process results in
Reconciliation
share, overall revenue shares still remain
uncertain payment values and
timings skewed

• In addition, MIS reconciliation issues and the
absence of a dispute redressal system has
resulted in VAS providers having little
• Lack of a representative body recourse
results in no formal addressal of
Dispute
Redressal
disputes which have a negative • Disputes between the VASPs and carriers are
impact on the smaller VAS beyond the purview of TRAI and TDSAT and
companies
taking the cases to court is a lengthy process



Given the high level of market inefficiency and carrier control, there is a
significant amount of uncertainty in business models for TPEs
On-Deck VAS

Dependency of the Revenue of MVAS Provider • As the primary revenue stream of TPEs is
on Carrier Revenue dependent on carriers, there is clear linkage
between carrier revenue growth and TPE
Total Telecom Revenue revenues (and a lagging / leading impact on
• Decline in RPM due to stock price)
hyper-competition
• Demand in terms of MoU • Even in cases of decline of carrier voice
also declining revenues (and not VAS revenues), the carriers
have been known to heavily reduce revenue
shares of VAS partners to protect their own
EBITDA margins
• Payouts from carriers are often delayed and to
Revenue of a MVASP Reduced revenue share meet the timelines for compensating their
will further pull down the content partners, platform providers accept
• Revenue share revenue of MVASP
agreement with carriers
• Carriers reducing revenue
payments at the carriers‟ terms and conditions
• Market impact share to optimise their opex • As VAS providers are not licensed entities, they
do not fall in the scope of dispute redressal
through TDSAT1
 In the absence of dispute redressal, VAS providers
need to approach the traditional judiciary system to
Revenue of a MVAS Provider resolve issues with carriers & other partners, which
is extremely inefficient and costly

Note: 1. TDSAT: Telecom Disputes Settlement and Appellate Tribunal

Source: Analysys Mason, Company Reports, Industry Inputs


This unpredictability of overall revenue and limited profitability potential
has led to platform providers investing in international markets
On-Deck VAS

Average Revenue Share (Range) for Technology
Providers and examples of Acquisitions by • Due to constraints in overall revenues, many
Indian Platform Providers in International Markets
technology providers are expanding to
international markets with better revenue share
100%
arrangements and higher end user pricing of
services
• OnMobile acquired
80% Dilithium Network
• OnMobile claims a total base of ~1 bn
(2010)1 subscribers, with 300 mn subscribers from
international markets, with growing revenues
60% from this segment – 25% of revenues in FY‟10
• IMImobile acquired UK‟s WIN plc for INR were from international markets
1,170 mn (USD 26 mn) (October 2010)2
40% • IMImobile entered Europe with acquisition of • Other companies such as IMI Mobile and
content distribution pioneer dx3 (2008)3 Phoneytunes have also expanded their
• Mauj mobile, People Group‟s company has
acquired UK based Mobango in 20104
international presence significantly, with up to
20% • One97 plans to expand to markets similar to 70% of their revenues coming from these
India such as pre-paid minutes dominated markets
European markets

0%
India USA Europe

Note: 1. Dilithium networks is a global provider of mobile video infrastructure solutions, with customers across 120 service providers and carriers in 60
countries; 2. WIN plc is a mobile content and services firm with revenues of approximately INR 2,700 mn (USD60 million); 3. dx3 is a UK based
digital content delivery services provider; 4. Mobango is a UK based mobile application and user generated content store


This is also resulting in limited long term innovation and investments, with
carriers placing major focus on increasing penetration of basic services
On-Deck VAS

Subscriber Penetration of VAS Services (2010)
• After SMS, CRBT is the only app to achieve
47%
significant penetration due to carrier promotion
and discovery mechanisms
• VAS providers focus on mass market services
20%
17% 15% as they do not have sufficient incentive to
experiment with innovative offerings for specific
6%
2% niche consumer segments. Launching a new
P2P SMS Games CRBTIVR / Voice Portal SMS
A2P Others
service can take months
• Given the high level of control of carriers and
Revenue Contribution of VAS (2010) the small overall market for platform providers,
larger international VAS providers largely have
1%
stayed away from the Indian market
P2P SMS
• Buongiorno is one of the few large, global,
38%
34% P2A/A2P SMS standalone, pure play mobile VAS companies
CRBT that has extended its operations to India
IVR Portals

Mobile Data
6%
13% 8% Others



We believe that revenue shares are best left to market forces, given their
direct impact on innovation
On-Deck VAS

Revenue Share Range Estimates by Type of MVAS and their
Level of Content / Service Differentiation • There is no precedent of revenue
share regulation in global markets
60%
• Revenue shares are a commercial
discussion between two commercial
50% • Very popular service,
albeit stabilizing now entities and should be left to market
• Network integrated forces
service – harder to
40% switch providers • Allowing the market to determine the
• Content is important revenue share will ensure the
introduction of new and innovative
30% • Innovative service with
high value proposition
offerings

• Very generic service
• Celebrities are • Innovation and ingenuity will be
procured by VASP
20%
• No clear differentiator rewarded while commoditized
between providers services will be compensated
accordingly
10%
• Setting a floor for revenue shares
would unjustifiably raise the cost of
0% commodity content / services
News Alerts CRBT Celebrity Talk



Apart from revenue shares, the on-deck VAS market still has challenges
with MIS reconciliation, dispute redressal & short code integration
On-Deck VAS

Uncertain Environment for VAS Providers
• The key issues that need to be addressed are
MIS reconciliation, short code administration
and dispute redressal
• The process of MIS reconciliation between
Carrier A Carrier B carriers and VAS providers needs to be
• IUC framework for
interconnection streamlined to ensure timely payment
• TDSAT for dispute schedules and method for data reconciliation
redressal
• Formal representation
bodies (COAI, AUSPI)
• The process for shortcode administration is
• Interconnection
also not optimal, and needs to have some
• MIS Reconciliation
• Interconnection guidelines to simplify the allocation and
• MIS Reconciliation
• Dispute Redressal integration process
• Shortcode
• Dispute Redressal
•
Administration Shortcode
Administration
• In addition, there is no formal body that the
• Billing and VAS
Revenue Shares • Billing and VAS providers can approach in case of any
Provider Revenue Shares
disputes with carriers or between themselves


Mobile VAS: Off-Deck Providers (Challenges) 24

On the other hand, challenges in off-deck VAS are primarily due to lack of
alternate billing mechanisms and delays in short codes integration
Off-Deck VAS

Impact on D2C / Off-Deck MVAS Providers:
Delays in • Individual carrier controlled and
Access to maintained short codes make • These issues have constrained the growth of
Premium national rollouts a lengthy and mobile VAS in India
Numbers complicated process
• As far as technological feasibility is
concerned, SMS and WAP/GPRS are the only
carrier agnostic services that can be provided
• Lack of alternate billing  Even for SMS, short code services face several
mechanisms results in a carrier issues from allotment of short code to deployment
Carrier Control
controlled off-deck MVAS industry of service
on Pricing
where the VAS providers cannot
price their own offerings  For WAP / GPRS, TRAI has made
recommendations which do not allow the carrier
to block any mobile portal

• MVASPs do not have the freedom  IVR shortcodes face similar problems to SMS,
to choose from the access and given the importance of voice services in
Carrier enablers that they would like to India, are actually a more important mechanism
Arbitration on
use for their service. Revenue for reaching the masses
Revenue Share
shares are opaque, even when
using only the billing channel

Source: Analysys Mason


The lack of alternate billing / payment channels has resulted in restricted
growth of off-deck VAS in India
Off-Deck VAS

Payment Methods for Purchase of off-deck VAS
State of
Maturity • The absence of mass
1 Carrier Billing penetration of alternate
Simple one button
purchase for the Mature payment channels such as
Revenue share ~40% consumers credit cards / wallets
Carrier IN constricts the ability of the
VAS providers to directly
2 Mobile Wallet approach and bill
Consumers need
Phone Number to provide the consumers
9988998899 details of mobile
Nascent
Password
wallet if not using • The D2C VAS industry has
the carrier‟s wallet
Mobile wallet details
Mobile wallet for purchase of thus remained very small
provider‟s VAS
server
• Most VAS providers go
3 Credit / debit card or net banking through carrier billing to
Consumers need increase their reach, and
to provide details
of payment
end up sharing a high share
instrument and Niche (~60-70%) of their revenues
also go through
the bank site for
with the carrier for use of
Payment
Credit/Debit card details + Gateway second level of only the billing channel
second level authentication; Processor‟s authentication
net banking details server



This is in contrast to global markets where the off-deck VAS industry
thrives in the absence of billing constraints
Off-Deck VAS

Mobage Town Case Study Drivers for Japan’s Mobile VAS Market

Developer • 90% revenue share to mobile developers
Revenue for both on-deck and off-deck content /
Share services

• Carriers control the device roadmap
Device including handset OS and features
Capabilities
• All handsets are internet enabled

• Flat-rate data plans introduced with a
Data Plans
cap on maximum spend for consumers

• Market leader NTT DoCoMo adopted
Carrier
these developer friendly measures and
Initiatives
also offered flat rate data plans

• Youth specific application in
• Global markets such as China, Japan and
Total Revenues ~ $ 1 bn Korea, have a robust D2C ecosystem; the
Japan with gaming,
Active Accounts 22 mn networking, avatar and news market has benefitted from an early opening of
• 50% revenues from user carrier walled gardens to offer easy access to
Page views / month 17 bn transactions D2C services



Carrier billing remains an option, but issues of no control over pricing by
off-deck providers and skewed revenue shares remain
Off-Deck VAS

End user Price for Voice and Non-voice ARPU vs. Price of Popular Game in Different
Offerings in India (2007 & 2010)1 Countries (INR)2

INR 30 30
INR
30 2500 (2%)
2171.7

2000
(3%)
20
1507.5
1500
15 15

10 10 10 10 10 1000 (17%)
10 722.3
(10%)

500 444.6
(33%)
3 3 3
161.6 119.7
54.0 44.6 42.8 44.6
0 0
Voice Premium Mono Tone Poly Tone Wallpaper CRBT India USA UK China Malaysia
(10 mins SMS Download Subscription
call)1
2007 2010 ARPU Game Price

Note: 1. For a 10 minute call; 2007 rate assumed at INR 1 per minute, 2009 rate at INR 0.5 paisa per second, Cost of per transaction for SMS,
monotone, polytone and wallpaper, monthly subscription for CRBT; 2. India (Paid game on Indiatimes), USA, UK, China (Paid game
on Apple Apps Store), Malaysia (GamesUnlimited; Maxis games site); Most games in China are cracked and available for free.
Number in parenthesis indicates the cost of game as a % of ARPU
Source: Analysys Mason, Wireless Intelligence, Industry Inputs


In addition, MVASPs face issues in the integration of short codes, which
inhibits the revenue potential from voice and SMS services
Off-Deck VAS

• Short code services face multiple issues, right
From allotment to deployment, short codes are from the first step of short code allocation to
completely dependent on the carrier service deployment and management
• Inordinate delays in request processing and
allotment of short codes are common within
Allocation Deployment the industry
• In addition, since short codes are controlled
by the carriers, situations arise where some
carriers have allotted short codes, while
Delay: Request processing Blocking: Selective blocking
and short code allocation is of codes that are considered others have not. In such a situation, services
often quite delayed „competitive‟ by carriers get delayed and sometimes don‟t get
launched ever
• Even once allotted and deployed, short code
services face issues such as arbitrary pricing
Interoperability: VAS and blocking of services that are deemed
Arbitrary pricing: Could be
provider has to take a
separate short code from
troublesome especially for „competitive‟ by the carrier
small VAS providers
each carrier


Mobile VAS: SMS (Challenges) 29

Challenges in SMS adoption include the lack of handsets with a common
standard for local language support
SMS Penetration

Impact on SMS Adoption:
• Less than 10% of the installed
base of handsets support non- • These issues have constrained the growth of
Limited SMS usage in India
Roman characters
Availability of
Handsets with • Limited local language support, • As the number of subscribers from rural areas
Local Language
Support means a large portion of the is growing at a faster rate than in urban areas,
population (~ 90%), is not the demand for SMS in Indian language is
addressed likely to continue to grow

• Complexity of Indic scripts results in relatively
high number of characters per word on an
average
• Variation in keypad layouts and
standards for Indic language • No display guidelines and standards are
Absence of
support across vendors / devices available
Standards Based
Solutions for results in loss of content
Local Language  3GPP, body for global mobile telephony
SMS • This difference creates standards, amended the SMS standards in 2008
incompatibility between to accommodate a request from Turkey to
handsets support the full Turkish alphabet

Source: Analysys Mason, Centre of Excellence in Wireless Technology (CEWiT) India Reports

Mobile VAS: SMS (Challenges) 30

Lack of a local language standard across devices has led to limited SMS
penetration to English / Roman characters users
SMS Penetration

Top Print Newspapers by Circulation in India SMS Penetration, 2010
(Readership, mn)
100%
100%
Dainik Jagran, Hindi 55 80%
Dainik B haskar, Hindi 34 75%
A mar Ujala, Hindi 29
47%
Hindustan, Hindi 27 50%
Lo kmat, M arathi 21
Daily Thanthi, Tamil 20 25%
Dinakaran, Tamil 17
A nanda B azaar P atrika, B engali 16 0%
Philippines China India
Eenadu, Telugu 14
Rajasthan P atrika, Hindi 14
M alayala M ano rama, M alayalam 13
Times o f India, English 13 • Apart from lower SMS pricing in Philippines and China than
P unjab Kesari, Hindi 11 India, the ability to message in local language is the key
Daily Sakal, M arathi 11 driver for high SMS penetration
P unya Nagari, M arathi 10
 The inherent efficiency of the Chinese language (average word-
Dinamalar, Tamil 10 length less than 2) overcame the limitations imposed by Unicode
Vijay Karnataka, Kannada 9 (UCS-2) in terms of 70- character size limit
Gujarat Samachar, Gujarati 9
 In Philippines, the local languages are written using the Roman
M athrubhumi, M alayalam 9 script which means that the default 7-bit GSM alphabet can be
B artaman, B engali 8 used (as in the case of English)
0 10 20 30 40 50 60 • Different handset OEMs use their own proprietary standards
for local language text creating interoperability issues


Mobile VAS: Recommended Solutions 31

Opinions vary across industry stakeholders on the preferred solutions to
address the current issues with the mobile VAS industry

1. Policy Framework without 2. Licensing with Market Determined 3. Licensing with Policy
Licensing Revenue Share Determined Revenue Share
• A focused licensing regime needs to
• No separate VAS license needs to • A broader licensing framework, which
Position

be in place for VAS, including
be issued – but a policy framework leaves revenue shares to be driven by
regulation recommending minimum
to support VAS providers is required market forces
revenue shares

• Licensing will ensure that the VAS
• Revenue shares should be left to industry gets support on critical issues • Revenue shares remain a critical
market forces, as that will help drive such as MIS reconciliation and dispute element in the mobile VAS ecosystem
innovation redressal and are currently hampering growth
Rationale

• Creating licenses will increase the • Revenue share is a commercial and investment in the industry because
agreement between entities and cannot of their low levels
costs of the MVASPs and innovation
will suffer as smaller VAS providers be mandated by the Government • Once revenue shares are regulated,
will not be able to bear the attendant • Once off-deck services gain traction, other operational issues such as MIS
costs of a license market forces will drive revenue shares would also get addressed
without intervention

• Formation of a self governed
industry forum to formally represent • A VAS licensing framework that will • A VAS license framework that will
Potential
Solution

the VASPs regulate MIS, dispute redressal and regulate revenue shares, and
• Formation of a premium number other issues, but will leave revenue recommend measures for
policy which will govern the shares to market participants implementation and monitoring
operation of short codes



While licensing is potentially an option to address these issues, licensing
by itself does not guarantee a solution

Licensing will ensure that the VAS industry gets But, licensing may not be best solution for
support on critical issues such as MIS these issues as it comes with it‟s own share of
reconciliation and dispute redressal additional burdens and responsibilities
• Allows companies to voluntarily be indexed and • Licensing will result in high costs, including
documented by TRAI, helping more clearly bring out license fee payments and operational delays as
the role of third party VASPs Govt. process and approvals would be required
• Allow VASPs to come under interconnection • Innovation will be hindered as launching a new
regulation and thus access carrier services in a VASP will require first acquiring a license
timely fashion with guaranteed QOS, and without • Increased overheads and reporting resulting from
the threat of being blocked licensing can inhibit the growth of the MVAS
• Address disputes redressal through TDSAT industry
• Rate players in the VAS space for their compliance • Regulating revenue share will not be conducive to
with best practices and standards set by TRAI and innovation, and is best driven by market forces
others. Coupled with information disclosure
measures, this would help in improving market
functioning and dispute redressal

There are other alternatives which can be adopted to help drive growth in the Indian MVAS industry

Source: Analysys Mason, Response of Industry Participants to TRAI VAS Consultation Paper – Feb 2011


Hence, a policy framework without licensing is expected to better foster
market enablers for the growth of MVAS in India

1. Policy Framework without 2. Licensing with Market Determined 3. Licensing with Policy
Licensing Revenue Share Determined Revenue Share
• A focused licensing regime needs to
• No separate VAS license needs to • A broader licensing framework, which
Position

be in place for VAS, including
be issued – but a policy framework leaves revenue shares to be driven by
regulation recommending minimum
to support VAS providers is required market forces
revenue shares

• Licensing will ensure that the VAS
• Revenue shares should be left to industry gets support on critical issues • Revenue shares remain a critical
market forces, as that will help drive such as MIS reconciliation and dispute element in the mobile VAS ecosystem
innovation redressal and are currently hampering growth
Rationale

• Creating licenses will increase the • Revenue share is a commercial and investment in the industry because
agreement between entities and cannot of their low levels
costs of the MVASPs and innovation
will suffer as smaller VAS providers be mandated by the Government • Once revenue shares are regulated,
will not be able to bear the attendant • Once off-deck services gain traction, other operational issues such as MIS
costs of a license market forces will drive revenue shares would also get addressed
without intervention

• Formation of a self governed
industry forum to formally represent • A VAS licensing framework that will • A VAS license framework that will
Potential
Solution

the VASPs regulate MIS, dispute redressal and regulate revenue shares, and
• Formation of a premium number other issues, but will leave revenue recommend measures for
policy which will govern the shares to market participants implementation and monitoring
operation of short codes


IAMAI - AML Mobile VAS Report - Slides - 2011-07

IAMAI - AML Mobile VAS Report - Slides - 2011-07

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