Given the declining ARPUs, rising ompetition, low tariffs, and nearaturation levels in the voice market, telecom operators are gradually realising the importance of mobile value-added services (MVAS) as an alternative revenue stream and a means to differentiate themselves in the market.

The MVAS industry has evolved and witnessed a phase of high development with a year-on-year growth of 100 per cent in the past few years. This pace of growth is likely to continue in the future as is evident from the revenue projections by industry analysts. The VAS market's current turnover, which is about Rs 150 billion, is slated to increase to Rs 500 billion by 2015 and Rs 1,000 billion by 2020. The share of VAS revenues in the overall balance sheet of operators is also expected to rise from the current 10 per cent to about 80 per cent in the next 10 years.

The VAS industry, therefore, presents a huge opportunity for the Indian economy and has the ability to fill the large infrastructure and information gaps in the country, enabling it to leapfrog to the next level of growth.

3G presents the biggest opportunity for the development of the Indian VAS market. Currently, only Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited are offering 3G services in select circles. Private operators are expected to launch these services by end-2010. The large-scale rollout of 3G will give a boost to the data services segment with video applications ruling the game. Services like video conferencing, video calling, gaming and mobile TV will gain traction due to the larger bandwidth made available by this technology. In rural areas, 3G will also enable services like education and health care, and will lead to the creation of a virtual marketplace. However, the uptake of these services will depend on the utilisation of 3G spectrum by the operators.

3G will also drive the uptake of MVAS applications, mobile internet and multimedia content, thus providing an opportunity to increase advertising revenues in this segment.

Broadband wireless access spectrum will also play a crucial role in driving MVAS uptake in the country. The Department of Telecommunications is aiming at 250 million broadband wireless connections by 2012 while ensuring broadband connectivity to every village panchayat through optic fibre and Wi-Max.

The increasing disposable income, owing to the near-double-digit growth rate, will be a key driver of the demand for VAS in urban India. Today, consumers desire more from their mobile phones than basic voice telephony and messaging services. While the country's youth is likely to give preference to entertainmentrelated services and social networking, others will be more interested in utility services like location information, mobile commerce and local content-rich VAS.

Rural VAS also offers a big growth opportunity for the sector. According to industry estimates, the rural subscriber base is expected to grow at a compound annual growth rate of 85 per cent in the coming years. Services like m-education, m-health and m-commerce are also expected to grow with the government looking to promote e-governance in remote areas. While m-education enables people to learn English using regional languages as the platform, other rural VAS include information on mandi prices from 2,200 mandis for farmers; and entertainment-based services catering specifically to rural consumers.

With rural India constituting a significant part of the subscriber base, operators are trying to gain a stronger foothold in these markets. Initiatives by Bharti Airtel, Reliance Communications and Idea Cellular to connect with the rural masses are visible in their tie-ups with content providers like IFFCO and Reuters Market Light for services related to agriculture, weather and livelihood.

Mobile banking is also gaining popularity by delivering secure, regulatorcompliant services to unbanked citizens in these areas. This model is profitable to the service providers and affordable for the rural population.

Mobile number portability (MNP), which is expected to be implemented by the first quarter of 2011, is also expected to drive the growth of the VAS industry in the country. With the introduction of MNP, voice services will cease to be a differentiating factor and operators would need to come up with innovative offerings including MVAS.

In terms of technology, the introduction of next-generation networks (NGNs) will enhance the quality of services in the MVAS market. NGNs use softswitch technology, which is based on packet switching/internet protocol phone and enables speedy introduction of MVAS at reasonable costs.

Despite its relevance to the Indian market, there are a number of issues plaguing the growth and uptake of MVAS in the country.

One of the biggest deterrents is the current revenue-sharing arrangement in India -­ telecom operators take home the lion's share of revenues, thus hurting the interests of other stakeholders. A fair revenue structure needs to be designed so that all stakeholders in the ecosystem get the right share of revenues. This can be done by aligning the revenue structure with the services being provided.

The high pricing of VAS offerings is another major deterrent to the growth of this segment. Currently, MVAS is priced higher than the actual value it delivers.
Moreover, the Indian MVAS market consists primarily of prepaid users, who have a relatively low budget for MVAS in their overall mobile expenditure. The stakeholders, therefore, need to package their services in a manner that ensures the right mix of money and value distribution for the user.

The poor quality of the network is another impediment to VAS uptake -­ user experience while accessing and downloading services has not been optimal. This situation is expected to improve with the nationwide rollout of 3G services.

Telecom analysts expect that initially 3G spectrum will be primarily utilised to ease the congestion on networks and for improving the quality of voice telephony.
It will take two-three years for 3G to have a positive influence on the data services market and bring in innovative VAS in the Indian telecom space.

Limited user awareness about these services is another roadblock to VAS adoption. If a service is too complex for the average subscriber to understand, it would be difficult to ensure higher uptake. The promotional SMS sent on mobile phones is a basic way of creating consumer awareness about VAS. This method of promoting MVAS has now reached the saturation stage. Marketing efforts are now required to be redirected towards educating users about the various services and their usage value.

In addition, service providers need to make consumers aware of the process of unsubscribing from any service. This is important because consumers may not use these services if the exit barriers are too high.

Moreover, the lack of local content limits the growth of the MVAS market.The stakeholders shy away from offering innovative services and tend to rely on guaranteed revenue sources like SMS and ringback tones.

For the majority of the rural population, the mobile phone is the first communication device. However, to be able to access rural markets, service providers need to identify the needs of these consumers, develop relevant content and market these services appropriately. Low literacy levels in these areas act as an additional limitation. Moreover, from a rural perspective, the current MVAS charges are very high.

The MVAS market also faces issues of transparency in the billing and payment system, leading to a conflict among the stakeholders about revenue sharing.
There is a need for a central authority to monitor the information technology system and bring transparency to the billing system.

Indian customers are more prone to using low-cost handsets which offer basic telephony and simple VAS features because of the complex functioning of high-end phones. This can be a hurdle in promoting the uptake of VAS in the country because these applications require GPRS-enabled handset devices.

Despite these challenges, India has the potential of becoming the world's largest VAS market owing to its population of 1.2 billion and its diversity. But, for the holistic development of the MVAS segment, there is a need for the government to provide regulatory support and fix quality standards. Operators, on the other hand, need to provide sustainable value in VAS besides ensuring a rich customer experience for the industry to realise its projected growth.

Key opportunities and challenges

Key opportunities:

•  3G rollout which will provide a boost to data services
•  Government initiatives like Broadband for All by 2012, targeting 250 million wireless broadband connections
•  High disposable incomes, leading to the adoption of innovative VAS
•  Initiatives in rural areas such as m-education, m-health, m-commerce, m-governance

Key concerns:

• Skewed revenue-sharing agreements between operators, vendors and content developers
• High price of VAS offerings -· Poor quality of services and operator networks
• Initial utilisation of 3G networks for easing network congestion
• Difficulty among users in understanding complex VAS offerings
• Insufficient schemes for unsubscribing to a particular VAS
• Lack of localised content
• Lack of transparency in billing
•  Limited adoption of VAS-enabled high-end mobile phones