VALUE Added Services (VAS) and 3G are two very exciting terms for our industry – but before I proceed I would like to demystify them: VAS as I see today actually stands for “Very Average Services”. There is no innovation. There is nothing new happening at all in terms of VAS services or content. VAS continues to be limited to Astro, Bollywood and Cricket – ABC as we keep calling it in all our interactions.
3G is seen as the wonderful thing which will make ARPUs skyrocket and which will create additional VAS revenue from data rich services. But how much of 3G will actually be used for data – as a lot of it will get consumed for carrying voice – how much of it will really get unlocked for data and when?
VAS in India contributes 8-12% of operators’ revenues. In other countries its contribution is between 20- 25%. We are actually faced with two questions - Why is the VAS share so low in India? And can 3G make VAS industry succeed?
Before 3G can make VAS succeed, it itself has to succeed. Success of 3G is dependent on device costs, service costs and available VAS content. Device costs thankfully are getting lower & lower – thanks to our neighbour and some innovative Indian companies.
Service costs – I think service costs too will become a non-issue given the highly competitive industry and if the current pricing trends are anything to go by. So what will make 3G successful is VAS content – and once 3G is successful it will make VAS successful. What lovely inter-dependence!
Let us now examine why VAS has failed and the industry has seen lower growth rates than its potential. It is to my mind a fault of market failure – the eco-system has failed. Ecosystem is stuck in a vicious cycle. Content producers are only producing VAS content which has low cost of production – eg wall papers, ring tones, astro or other plain vanilla text based content – all of this is generic content which is adapted for mobile – with sole driver of keeping the production cost low. Why do content producers do so – because they get extremely low revenue shares from the mobile operators! Why do mobile operators give low shares - because they do not get any specialised content! If someone was producing something special, he can make the mobile operators compete for the content – but usually it does not happen. Apart from this the VAS industry also faces challenges like reconciliation issues with the operators, delayed payouts from the operators and lack of common body to offer unified Short Codes which work across all operators at pan India level. The industry was hoping that when the new operators will come in, perhaps the VAS industry dynamics will change but it truly was hope against hope.
We need to correct the market failure. We need to break this vicious cycle. I see only two ways – either the industry stakeholders meet up in a room and address the challenges on hand or the industry seeks regulatory intervention.
Industry interaction has been attempted and it has failed. So perhaps this is not a viable choice going forward. Regulatory intervention remains a possibility – within IAMAI a majority view of member community has now emerged around seeking a license and appropriate recognition of the VAS industry.
Regulatory body TRAI has been aware of many of the issues that are faced by the industry and has recommended many progressive steps for its development in the right direction. A few of them are:
As early as Feburary 2009, the following recommendations directly relevant to the industry were made: Section 2.1.3 (iii) Telecom access service providers need to provide fair access to their telecom infrastructure to content providers providing Value Added Services through mutual agreement. This shall includ