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IET Value Added Services

companyMobile 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, Interactive has conducted the research with the help of associates in the region and 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.

Interactive has done Mobile VAS Market study in Africa and the insights provided within our research & study can be used by both the mobile operators and the Interactive as content provider to better address the needs of their customers. A timely and strategic action would help nurture the mobile VAS market in Africa and Interactive shall be strategically deploying its VAS Networks


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. The key addressable barriers would be to ensure greater rationality in revenue sharing between Telcos & content developers; ensure copyright protection, develop higher quality content and Interactive has developed contents which goes beyond Location Based Services, Film Industry, Sports, Fun & Animated Games, Social Networking, News & Finance, Web Portals, Caller Tunes and Information 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 very good potential in Africa.

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 prepaid 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 subscribers are also low usage subscribers who contribute only 35-40% ARPU's as compared to the post-paid segment.

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 Africa have been faced with two clear challenges:

  • To address customer retention in the high churn pre-paid market
  • 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 cut throat competition and with the call rates in Africa, the margins are very good. Now, therefore they are looking at VAS as the next wave for extra 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 Africa shall help both by macro level environmental factors and specific market initiatives to develop this category.

The growth of VAS in Africa shall help both by macro level environmental factors and specific market initiatives to develop this category.

There is now a critical mass of users in the African 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.

Personalization of the digital world and digital devices

With increasing pressures and stress on individuality, mobility users also want to carry forward their individuality to their mobile device. Thus for a large number of users the mobile phone has become a truly personal device and VAS has become an extension of 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.

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 Africa. Most of the rich content available to the end users revolves around these two, with Ringtones of popular 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 & music industry worldwide 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 African. 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) in India generated 58 million SMS over a 2 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.

Interactive further categorizes into the following broad categories of Mobile VAS in Africa

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

(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.

MMS & WAP:

Include MMS (Multi Media Messages) & subscription charges for WAP services.


Though the mobile subscriber base has grown by over 85% we believe that the relative growth in VAS revenues will be lower in current scenario as there is no enough focus on VAS in Africa. 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 2009-2010 will continue to be driven by Ringtone downloads and by games; the share of games in the overall pie is also expected to grow.

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.

Entertainment VAS-

Entertainment VAS is designed for mass appeal and extensive usage. These provide entertainment for leisure time usage. An example of these kinds of services is Jokes, Ringtones & Games. These services are currently very popular and will be driving the revenues for the mobile VAS market in Tanzania & South Africa.

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.

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. All over the world, entertainment VAS is there to stay though we predict a fall in its contribution to the overall VAS revenue pie in the next 2-3 years. This would happen as other type of services become more popular and user engagement with entertainment VAS reaches saturation. Interactive shall focus on all services at the same time so that with entertainment subscribers should also be encouraged to enjoy all VAS services.

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 initial stage in Africa 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 in Africa.

We feel that growing eCommerce will also have a positive rub off effect on mCommerce 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.

Interactive's VAS business model

The mobile VAS market 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. Interactive plays a vital role in its business model and provides a comprehensive VAS platform to the operators, so that they should concentrate on their core business and Interactive provides value additions to their subscribers. The Interactive VAS Ecosystem is as below:

VAS Platforms

Every service needs a platform for delivery; Interactive 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 (Interactive) on behalf of the operator. The content is arranged by the Operator from the Content Aggregator (Interactive) 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 per minute 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 areas of Tanzania & South Africa, 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.