Telcos go creative on VAS

The value-added services sector is expected to touch Rs 9,760 crore (Rs 97.6 billion)by end June.

Telecom operators in India appear to be gung-ho over the prospects of value-added services which help them to differentiate, add substantially to their margins while simultaneously be a precusor to third generation or 3G regime. The recent creative campaigns of majors like Vodafone (ZooZoos), Airtel (R Madhavan and Vidya Balan), Virgin Mobile (music download) and Aircel's (Internet applications) are a case in point.

VAS offerings provide telcos with a wider platform for communication. Sunzay Passari, VAS & devices head at Loop Mobile, says: "If you look at the current campaigns of telcos, there's focus on VAS. Strategically, it's VAS where telcos can differentiate themselves.

"Our advertising is more VAS-oriented. Around 60-70 per cent of our total ad budget goes into VAS advertising," says Passari. This year, VAS comprised 12.5 per cent of Loop's total revenue, and over 8 per cent came from non-SMS services. Passari says the share of VAS is increasing significantly.

The Internet and Mobile Association of India predicts that the VAS industry will touch Rs 9,760 crore by end of  June 2009, growing at 70 per cent. Music, caller ring back tones and wallpapers are the most consumed services. Over half of the music industry's Intellectual Property Rights comes from the mobile space.

Moreover, given the declining average revenue per user and increasing competition among operators as new players join in, there will be more focus on VAS.

For India's largest private telco, for instance, VAS will play an important role as Bharti Airtel moves towards achieving its target of adding another 100 million in just three years. The company has already crossed the 100-million subscriber mark. VAS accounts for around 10 per cent of Airtel's revenues (non-SMS would be around 6 per cent).

"As we move from plain generic communication to entertainment, VAS plays an important role. It acts as a productivity-enhancement and livelihood-enhancement tool. For instance, we have mandi prices for rural people on their mobiles, we give them weather information and also provide local job search facility on mobiles.

As SMS moves from English to vernacular languages, VAS revenue (both from SMS and non-SMS services) will only increase," says Raghunath Mandava, chief marketing officer, Airtel.

Harit Nagpal, director, new business and marketing at Vodafone Essar, has a slightly different take on this subject. "We can't go away from our core, network promotion. ZooZoos was to offer some variety. You have to have some variety in your campaign," he says.

VAS comprises around 10 per cent of its total revenue, and more than half of it comes from non-SMS services. For Vodafone, while there is no significant increase in VAS revenue share compared to the near-past, it has increased in value terms.

Prashant Singhal, telecom head at Ernst & Young, opines, "Though voice is the killer application, operators don't have to induce customers to use voice. That's why there's this focus on VAS. Moreover for new operators, VAS gives better revenue margins too."

A new operator will end up paying 60-75 paisa (20 paisa termination charge and 45-55 paisa carriage fee) on a national call while charging the customer only 1.50 paise. On the other hand, chances are that an old operator's call will terminate on its own subscriber (on account of penetration), which will save him both the charges. VAS gives telcos a margin of 60-80 per cent.

Aircel, which since its inception has used VAS as its strategy, says VAS has helped it project its brand as fresh. Gurdeep Singh, COO of Aircel, adds: "Last decade had seen enough of roll-out and affordability in telephony. Future of telephony is VAS.

Thus we have put VAS at the core of our strategy. VAS contributes 10 per cent of total revenue of Indian telcos, whereas in other countries it contributes between 15-30 per cent of total revenue. It's an underexploited area we are looking to tap." Singh refuses that margins are better in VAS.

Also the VAS shift is a precursor to 3G. On asking if it's a preparation in account to 3G, Passari responds, "As you add more and more subscribers and take into account the number of players entering the market, moving towards VAS is the only way. When 3G comes, definitely it will give immediate boost to those telcos which are well positioned in VAS. So, it's a mix of both." Singh of Aircel holds the same view.