RIDING THE 3G WAVE
Launch of 3G services should boost fortunes of companies in the
mobile value-added services market
RAM PRASAD SAHU
he launch of 3G and
T broadband wireless
services in the cur-
rent financial year
could see value-
added services take off. On the
back of applications such as mo-
bile TV, video, music downloads,
as well as ringtones, the mobile
value-added services (MVAS)
market is expected to grow by
about 17 per cent annually from
2009-10 through to 2015-16, be-
lieves Frost & Sullivan.
This translates to a growth
of over two-and-a-half times, to
Rs 12,900 crore, over this pe-
riod. While there are a host of
companies in the sector, among
the listed ones who stand to ben-
efit from the MVAS growth sto-
ry are Dish TV, OnMobile Glob-
al, Tanla Solutions and Sarega-
ma, as well as UTV Software,
which derives about a fifth of its
revenues from games content.
Notably, the individual com-
panies should be able to grow
ahead of the industry. Says San-
tosh Sinha, industry analyst, ICT
Practice, Frost & Sullivan, “Ex-
pect a 17 per cent CAGR over
the next five years, with the rev-
enue of content providers ex-
periencing faster increase, due
to improving revenue share.”
Advantage VAS
The MVAS providers can be
broadly split into two—con-
tent providers (music, gaming,
videos) and technology enablers.
The telecom operator that offers
the services gets to keep about
60-70 per cent of the revenues
generated, while the rest is split
among the enablers and content
developers. Within the VAS seg-
ments, SMS services account
for about 25 per cent of the mar-
ket, while music-based content
such as ring tones tend to be the
most popular, accounting for
about half of the market. Games,
music downloads and videos to-
gether account for only about a
quarter, due to the lack of high
speed networks.
The 3G launch is likely to
change that. The potential can
be gauged by the fact that Chi-
na Mobile’s mobile internet traf-
fic on its network tripled after
it launched 3G services last year.
In India, post the launch of 3G,
analysts expect the share of the
mobile VAS market as a per-
centage of overall revenues to
move from just under 6 per cent
now to about 10 per cent by 2015.
Even in the interim, the im-
proving outlook is good news
for most companies, given that
a lot them had gone through a
tough 2009-10.
Beneficiaries
Dish TV is India’s largest DTH
player with a 33 per cent mar-
ket share. The company had en-
tered into a tie-up with India-
times last year to offer inter-
active services which would
allow users to preview and down-
load content (ring tones, wall-
papers, text alerts and contests)
on to their mobile handsets. With
digitisation of cable services ex-
pect this segment to improve
sharply going ahead. The com-
pany’s stock is trading at 5.3
times its 2012-13 EV/Ebidta and
BINAY SINHA
should post handsome returns
over a two year period.
OnMobile Global: The com-
pany is a leading application
service provider, with a market
share of around 35 per cent. Af-
ter a flattish performance over
the first half of 2009-10 in the
domestic market due to regu-
latory issues, OnMobile Global
registered a six per cent se-
quential growth in the March
quarter. Operating margins fell
220 basis points due to higher
content costs. Given the pres-
sure on the India business due
to rate pressure concerns,
growth could depend on how
its international operations (25
per cent of revenues), especially
its deals with Telefonica and
Vodafone, pan out. The stock is
trading at 22 times its 2010-11
earnings and could be consid-
ered at dips.
Tanla Solutions: This tele-
com infrastructure solutions
company operates in the prod-
ucts, network aggregation (SMS,
MMS), infrastructure manage-
ment and mobile payment seg-
ments. While its March quarter
results are encouraging, with
revenues growing about seven
per cent sequentially and mar-
gins improving on account of
lower sales cost, the near-term
outlook depends on the growth
prospects of its key market of
the UK. Post its five-year deal
with Nokia, it is focusing on mo-
bile payment solutions. The com-
pany has also tied up with In-
dian telecom operators and
broadcasters to offer pro-
grammes on the handset. While
its valuations are not demand-
ing (six times 2010-11 earnings),
concern over growth prospects
in its core UK operations may
cap any upsides.
Saregama: Music downloads
and ringtones are among the
fastest growing segments of
Saregama’s businesses. The
company is launching new for-
mats to leverage the strength of
its vast music catalogue. As most
of the growth in mobile VAS
is music-based, expect Sarega-
ma to be a major gainer.
Other companies that, ana-
lysts say, could also come into
play are Balaji Tele, broadcast-
ers like TV Today, Sun Networks
and Zee News.