The value-added services (VAS) market in India has so far constituted simple applications like email, instant messaging, educational information and text chat. However, the changing socio-economic structure has fuelled the demand for newer applications and networking services including video download, advertisements, gaming, video chat, e-education, e-health, e-governance and social networking. Earlier, providing such applications was not feasible owing to the low speeds offered by 2G networks. But with the proliferation of 3G and broadband wireless access services, users will be able to access a variety of application services developed by independent application service providers (ASPs) through various business models and technical implementations. The roll-out of open access broadband infrastructure (based on optical fibre) is expected to boost broadband penetration, which, in turn, would accelerate the growth of application services.

Currently, revenues from non-voice services contribute only 11 per cent to the total mobile revenues of telecom service providers. This is significantly lower than telecom markets in other countries like Singapore (32 per cent), the US (30 per cent), China (27 per cent), Japan (27 per cent), Korea (26 per cent), the UK (21 per cent), Germany (21 per cent), Italy (17 per cent), and Brazil (14 per cent). The demand for application services in India is expected to shoot up with the expansion of 3G and 4G services, development of enhanced handsets and their falling costs, innovative content/applications and packaging as well as a younger generation of mobile users.

Taking into account the high potential of the application services market, in 2011, the Telecom Regulatory Authority of India (TRAI) came out with a consultation paper on “Mobile Value Added Services”. Based on discussions with industry stakeholders and studies on the international experience with regard to regulation of these services, TRAI recently released a set of recommendations for application services.

Existing business models

Typically, the application services value chain comprises content creators/providers, mobile advertisers, aggregators, technology enablers, telecom service providers and end-users. Content development, application aggregation and provision of the technology platform is usually performed by a single entity. In this value chain, telecom service providers are more prominent as compared to content/application providers and content aggregators, most of which are essentially small and medium enterprises. Mobile handset manufacturers have also started playing an important role in the application services value chain. Further, advertisers are looking for higher delivery of marketing activities through application platforms.

The application services market is a three-player market comprising content/ application owners, content aggregators/ technology enablers and telecom service providers. There are two business models through which content/applications are delivered to end-consumers. The first is the “on-deck” model, whereby a telecom service provider undertakes the branding, marketing and selling of content/application as well as the billing process and collects the revenue from subscribers. As a result, the telecom service provider retains the largest portion of revenue (typically 70 per cent), while content aggregators and content developers share the rest.

In this model, the service platform, including gateway/middleware, is provided either by telecom service providers or by ASPs. In the first case, ASPs are responsible only for content aggregation and making it suitable for telecom networks. In the second scenario, ASPs provide the required technology platform along with the content/applications. Telecom service providers and ASPs have commercial arrangements for the provision of these services. In most cases, ASPs do not own the content/application but have tie-ups with content providers/application developers or copyright owners, termed as content owners. As per the commercial agreements, copyright compliance and digital rights management, including content sourcing, is the responsibility of ASPs.

An alternative to this is the “off-deck” model, under which ASPs can directly sell content to subscribers. The content can be provided either through the telecom operators’ portals or through common short codes (CSCs) allotted to ASPs. In this arrangement, content developers and aggregators typically retain 60-65 per cent of the revenue and pass on 35 per cent to the telecom service provider, as opposed to the on-deck model. The off-deck model requires ASPs to integrate and sign agreements with multiple operators to provide services to subscribers across carriers. They also need to approach each telecom service provider for allotment of CSCs.

Need for a regulatory framework

At present, there is no regulatory framework for application services except the consumer protection issues addressed by TRAI through the directions on application services provided by licensed telecom operators. ASPs are not regulated or licensed and act as service partners of telecom service providers. There is no standard format for agreements and telecom service providers, being the core of the application services value chain, usually dominate while finalising the terms and conditions of the arrangements.

In view of the growth potential of application services, ensuring entry of serious players, protection of consumer interests, and compliance on security and content regulations, TRAI has stated that it may be appropriate to consider the development of a licensing system for application service providers.

TRAI has thus made recommendations in the following categories:

Licensing for ASPs: Licensing  provisions for application  services  are  available  in countries like Singapore, South Africa,  Malaysia,  Bahrain  and  some  African countries. In Singapore, value-added network services are permitted under a class licence. In Malaysia, there is a provision for both individual licences and class licence for ASPs and content ASPs. ASPs provide particular functions such as voice services, data services, content-based services, electronic commerce and other transmission services.  Content ASPs include traditional broadcast services and newer services such as online publishing and information services. In Bahrain, there is a provision of class licences for VAS and licence applicants are required to register with the Telecommunications Regulatory Authority.

On the other hand, in some countries there is no requirement for obtaining a licence to provide application services and a simple intimation is sufficient. For instance, in Australia, all suppliers of premium mobile services are required to submit company details to the Mobile Premium Services Industry Register, managed by the Communications Alliance.

Further, TRAI has stated that with respect to application services in India, there is a need to ensure the entry of only serious players, a smoother process for allocation and opening of short codes, protection of consumer interests and compliance with content regulations. This can be achieved if ASPs are brought under a licensing framework. While most of the stakeholders are not in favour of a licensing system, TRAI is in favour of licensing through authorisation.

Provisions in existing licences for application services: At present, there is no uniformity with regard to the provision of application services in the licensing conditions for various telecom service providers. There is a need for clearly specifying the scope of application services that can be applied uniformly across various licences. TRAI has thus recommended some provisions for application services that should be included in the terms and conditions of existing licences as well as in the proposed licences under the unified licensing regime.

According to TRAI, the licensee may provide application services and additional facilities in the case of any value addition or upgradation that the technology permits, subject to intimation to the licensor and TRAI about the same. It should also give details of the provisions made for lawful interception and monitoring of these services or facilities at least 15 days in advance. Further, the licensee cannot provide any other application service, which otherwise requires a separate licence.

CSCs: In India, CSCs are allotted by telecom service providers, subject to the Department of Telecommunications’ (DoT) guidelines, which mandate the provision of CSCs starting at level five and comprising at least five digits. For any ASP or content provider to have a CSC across networks of different telecom service providers, it has to approach each telecom service provider with a set of CSCs. Usually, the CSC convenient for all telecom service providers is operationalised.

The problem with this approach is that considerable time is needed for activating a CSC across the different networks. Besides, there is no guarantee that a particular CSC will be available across all carriers. The ASPs will not be able to brand their product/content if the same short code is not available with all the telecom operators.

Further, there is no consolidated information available regarding the total number of short codes allocated so far by telecom service providers, or to whom they have been allocated and which code is allocated for what service. It is also reported that service providers levy a varying fee on ASPs/content providers for the allotment of short code, whereas DoT allots short codes to telecom service providers without any charge.

In countries like the US, Australia and Canada, CSCs are centrally allocated and the responsibility for CSC allocation is vested with a separate industry organisation. In the US, CSCs are assigned through online registration by an industry body, Common Short Code Administration. All CSCs are of five or six digits. The cost of registering and leasing a particular CSC selected by the applicant is $1,000 per month and $500 per month for each random CSC. In Canada, the Canadian Wireless Telecommunications Association leases CSCs for a monthly fee of $500 for the first three months and for $250 from the fourth month onwards.

TRAI has recommended the setting up of a Short Code Council (SCC) for the allocation of CSCs to telecom service providers and licensed ASPs/content providers. CSCs will be allotted to both ASPs and telecom operators centrally through an online web-based system in accordance with the National Numbering Plan. The SCC will also centrally manage the details of the CSCs allotted, the type of service provided, the tariff for the service and its hosting details, which can be used by customers for discovering the services interactively. The SCC would charge a one-time fee for the allocation of CSCs and a recurring fee for their renewal.

The service provided under the allocated CSC should be operational within three months and details of the same should be intimated online by the concerned ASP/telecom service provider. Further, telecom service providers should open the CSC within a fortnight of the code being approved by the SCC and update this information online.