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Mobile VAS firms turn to global markets for survival

Analysts say telcos will have to share a higher revenue to create a viable economic model for VAS firms
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First Published: Sun, Dec 30 2012. 09 39 PM IST
Globally, firms share 70-80% revenues with content providers but Indian telecom operators keep 60-70% revenue. Photo: Ramesh Pathania/Mint
Globally, firms share 70-80% revenues with content providers but Indian telecom operators keep 60-70% revenue. Photo: Ramesh Pathania/Mint
Updated: Mon, Dec 31 2012. 01 09 AM IST
Mumbai: Mobile value-added services (VAS) companies are increasingly focusing on global market as Indian telecom operators continue to keep bulk of VAS revenues from their subscribers.
For instance, when subscribers of a telecom operator use a value-added service like ringback tone, provided by any VAS company, the subscribers pay the telecom operator for the service. The operator, in turn, keeps 60-70% revenues and the remaining goes to VAS companies.
Globally, the scenario is different, with companies such as Google Inc. and Apple Inc. sharing 70-80% revenues with the content providers.
In Japan, telecom operator NTT Docomo Inc. shares 70% of revenues with VAS companies.
“Worldwide, the standard format is that content providers get higher revenue share. If they (local telecom operators) give lower share to content providers, how will VAS companies survive?” asked Manish Agarwal, chief executive officer of Anil Ambani-promoted Reliance Entertainment Digital Ltd. The company’s Zapak gaming business is expected to turn profitable next year with the rise in contribution from its global business.
For VAS technology provider OnMobile Global Ltd, too, international business contributes more than half of revenues. In the quarter ending September 2011, OnMobile’s international business’s contribution was about 42% of total revenues. A year down the line, in September, it has gone up to 59%, the company told analysts last month.
Hungama Digital Media Entertainment Pvt. Ltd, the largest on-demand digital entertainment company, has doubled its international business in the past one year. It is now offering technology and content to telecom companies in Middle East and South-East Asia, sharing about 50% of revenues.
“India remains a lucrative market but in international markets, the size of the wallet compensates for the less numbers,” Albert Almeida, chief operating officer of Hungama’s mobile business, said.
Hungama has gone live with six platforms for telecom companies and it is developing six more, including two in Africa.
Vodafone India Ltd is the lone telecom operator in India to share higher revenues—up to 70% with VAS companies—but only for direct to consumer (D2C) services.
In D2C, subscribers use the service directly from the Internet using their smartphones. For example, one can download a Bollywood song from Hungama portal on her phone, using the Vodafone network.
“Direct to consumer services are those services which are owned, branded and marketed by the partner. The only role which we play as an operator is providing billing integration. Since the partner is making all the marketing investments, we have agreed to provide them a higher revenue share,” said a Vodafone spokesman.
However, Vodafone doesn’t offer flat 70%—the revenue-share model has slabs. This means, higher the revenue generated, higher the share of the VAS company.
Globally, Vodafone has 10 platform partners and about 100 content partners.
In VAS value chain, four entities share revenues—telecom operator, originator of the content, the technology service provider and the aggregators, according to Sivarama Krishnan, executive director at audit firm PricewaterhouseCoopers Pvt. Ltd (PwC).
Across the globe, telecom operators take 30% and the remaining is shared by other three.
“In India, the telecom operators sell the VAS idea and get the customers,” Krishnan said, “which is why they take higher chunk of revenues”.
India is a classic case where telecom operators have been making a lot of money as they are responsible for collecting the payments, according to Abhishek Chauhan, senior consultant and lead-mobile wireless, information and communication technologies at business consultancy firm Frost and Sullivan (India) Pvt. Ltd.
“Consumers are not ready to pay much for services and revenue generation is an issue for both telcos and VAS operators. We are still in an immature VAS market where principles and definition of VAS is changing,” Chauhan said. “There has to be a change in mindset as people start consuming more infotainment and utility VAS. The government, as a regulator, has to come in for equitable distribution of revenue share and more relevant information.”
The $3 billion (around Rs.16,440 crore today) Indian VAS industry is expected to grow 22% for the next seven years but bulk of the revenue is going to the telecom operators and not VAS companies, said Chauhan.
Idea Cellular Ltd and Bharti Airtel Ltd have not started sharing higher revenues with VAS companies. Both the companies declined to comment on revenue share.
Telecom operators and VAS companies have been opposing the July 2011 directive of the Telecom Regulatory Authority of India (Trai) that asks operators to seek explicit consent from subscribers through SMS, email, fax, or in writing, before activating any value-added service. Even though the directive was issued one-a-half-year ago, it is likely to become effective by February with the appellate tribunal rejecting telecom companies’ appeal against it in November.
Idea managing director Himanshu Kapania said his company has made significant investment in a new service delivery platform to ensure that VAS is not pushed through aggressively. “The platform has turned from a push-based to a pull-based system and customers can activate or deactivate a VAS,” he said.
Rajan S. Mathews, director general, Cellular Operators Association of India (COAI) said the directive will have a “huge impact on the revenues of mobile operators and VAS providers”.
Findings from a few pilot projects conducted by the operators to evaluate the impact in case explicit consent of the subscriber becomes mandatory show that VAS activations would drop by more than 90%. Non-voice revenue for the mobile operators in India is around Rs.14,200 crore, 12% of total revenues.
In an investor conference call in November, OnMobile said Trai’s VAS guideline “is not beneficial for anyone including the consumers”. The company is taking initiatives to reach out to the consumers through alternate channels and improve their acquisition engagement.
Till now, VAS companies can reach out and get customers on their own on telecom operators’ network but once the new directive comes into effect, their dependence on telecom companies for business will increase.
Analysts said telecom operators will have to share a higher revenue to create a viable economic model for VAS companies. Till such time, there won’t be any substantial investment in the VAS market for creation of interesting content that can excite customers. Krishnan of PwC has his doubts whether the operators are ready to settle for a lower share of revenue as they “themselves are struggling to increase their revenues”.
Privately held Reliance Entertainment Digital and Hungama do not disclose their financials.
OnMobile, a listed company, posted a net profit of Rs.6.2 crore (down 34.6% year-on-year) on a Rs.179.8 crore revenue (down 2.9%) for the quarter ended September. The stock lost about 34% since January to close at Rs.41.80 on Friday even as Sensex, the bellwether equity index, rose some 25% during this time.
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First Published: Sun, Dec 30 2012. 09 39 PM IST
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