It's VAS that'll give the leading edge to telcos

Increase in number of telecom players, shift towards high-end handsets and increase in service offerings is expected to boost further growth in the segment.

"With new players like Virgin Mobile entering with a slew of VAS, one of the key differentiator between operators would be VAS offerings they have in their portfolio. A new operator entering the market cannot compete only on price. VAS will be the key element in its offering," said Manoj Dawane, chief executive, Mauj Telecom.

Mauj is one of the largest VAS players in the $1.5 billion domestic mobile value-added services segment.

Over a dozen new mobile operators are expected to launch their services soon, which is likely to fuel demand for unique and innovative VAS. VAS constitutes a whole ecosystem.

According to a report on Indian VAS market by Stanford University and advisory firm BDA Connect, there are four key elements in the VAS value chain, beginning with content owner (eg. Yashraj Films, Jump games), aggregators (Mauj, Humgama, Indiagames), software developers (mauj, webaroo) and technology enablers (Bharti Telesoft, Onmobile).

Not all VAS players have direct touch point with the end user. For instance, not many had heard of Onmobile, the biggest player in the segment till it went public two months back. Technology enables work with the operators, with their offerings silently powering VAS.

In the early days of mobile telephony, even basic SMS and roaming were considered value added services. However, this revenue is out of bound for VAS players. VAS products sold today are ringtones, ring-back tones and SMSs. Technology enablers provide solutions for operators like royalty programmes, electronic recharge and mobile commerce.

VAS players say with voice rates falling, operators would need to focus higher on data and VAS, their shield against falling ARPUs (average revenue per user).

Dawane says going forward, players will begin to monitise traffic by mobile advertising. "The other trend is mobile search, which has already picked up and will become more popular in the future. With 3G launch, more date data services will be launched," he said.

Mobile advertising has already begun to be monitised by several players. "What we offer is targeted contextual based advertising to a rapidly-growing subscriber base. By December, we are looking at 8 million subscribers sending 80 million SMSs a month, against 8 lakh subscribers sending 1.1 crore SMS a month now. These are not numbers an advertiser can ignore," said Sanyog Jain, director- business development, SMSCountry Network, which operates the popular 160by2 free SMS service. The service offers advertising space on SMSs sent free by users using the company's website.

Entertainment has been the most driving force behind VAS penetration. But as demand grows, users demand richer experience.

"Most prominent VAS application has centered around entertainment. With operators dropping data rates, data heavy applications have become more affordable. And with 3G coming in, we can expect next-generation VAS applications," said Atul Chitnis, senior vice-president, products and technology, Geodesic Information System. The company has launched Internet radio and instant messenger applications for mobile phones.

While there are growth opportunities, there are several constraints too.

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"We are a predominantly a GPRS market, which means there is a limitation on connectivity and bandwidth. These restrictions can make the user experience only so much rich," said Nagesh Madhwal, director - business development, Canvas M, a joint venture between Tech Mahindra and Motorola. Madhwal predicts that location-based applications and mobile commerce would be the next focus areas for VAS players.

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