T rans formational V A S Management

Case Study: Comvivas Managed VAS Services In a globally unprecedented move, in January 2009, Airtel Lanka outsourced the responsibility of its complete value added services portfolio to Comviva. Working in close collaboration with the operator, Comviva is aiding the operator build, manage, operate and grow an efficient and well-performing VAS business, which currently contributes about 13.5% to the operators overall revenues

Accelerated Growth
Bharti Airtel, a leading global integrated telecom services provider offering services in 18 countries across Asia and Africa, launched operations in the Sri Lankan market in January 2009. For Airtel Lanka, as the fifth entrant to the marketplace, the ability to create meaningful brand differentiation was a critical growth imperative for the operator Airtel Lanka identified value added services as the central element of its competitive strategy. This entailed Supports brand differentiation via faster time to market, greater innovation and service excellence driving VAS revenues Net Additions Growth Rate Managed V AS S ervic es involves governed trans ferenc e of operational res pons ibilities inc luding des ign and planning, integration and deployment and applications management to a trus ted third party

Key Highlights

implementation of scalable, ondemand business models with a high degree of built-in responsivenes s to meet

Eliminates complexity of managing fragmented services from multiple partners by providing a single point of contact for all vendors/partners
Source Wireless Intelligence

constantly expanding consumer demand for new services. Prevalent VAS business models, wherein the operator is predominantly responsible for sourcing, deploying, integrating, managing and marketing of value added services, however, were ill-suited to meet the operators goals. The model tended to be capital-intensive, did not provide the operator the requisite flexibility to introduce services in line with rapid changes in the VAS marketplace and entailed high operational overheads, which divert focus from core marketing and brand building activities, important for an entrant to a competitive market place. Airtel has been a pioneer in the telecom outsourcing in 2004 when it handed over management of its IT and network to IBM and Ericsson respectively, to focus on core marketing activities. . Taking a leaf from the resultant benefits of outsourcing the network, in an unprecedented move, Airtel Lanka adopted a radically new VAS business model to improve market competitiveness. The operator decided to entrust responsibility of its complete VAS operations to Comviva - an established, reliable and proven VAS infrastructure provider with over 10 plus years of expertise in VAS deployments.

Allows rapid and cost- efficient deployment of next generation services by converting fixed costs into variable costs Improves decision making by giving the operator access to vendor insight on emergent technologies and customer expectations

Manage financial risks with predictable and balanced operational and capital expenditure, whilst clearly defining commercial terms that are tied to adherence to key performance indicators

Sharpens management focus on customers and core business

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The collaboration with Comviva provided Airtel Lanka with an undeniable competitive advantage. In the first twelve months of operations, Airtel Lanka emerged as the fastest growing operator in the marketplace, acquiring approximately 2 million subscribers. Further, a compelling portfolio of VAS has ensured that , VAS penetration grew to 68% in a 5-month timeframe. Currently, VAS contributes about 13.5% to operators overall revenues, higher than the regional average of 10% Wireless Subscribers 15,445,757 Sri Lanka Key Indicators Population, total (millions) 20,156, 204

Challenges
Airtel Sri Lanka launched services in January 2009, the newest and the fifth entrant in the Sri Lankan mobile market. In a reasonably mature and GDP per capita, (current US$) ) Atlas ARPU USD 2.61 method

saturated market, where network quality and coverage are a given, the operator embraced a services-centric business model to differentiate services brand and drive growth. The VAS services marketplace, however, posed several challenges for the operator. Consumers wish to be in control, have widened choice and expect speed, variety, and innovation in the services offered to them by the service provider. Conventional VAS business models where the operator manages the entire VAS ecosystem internally were found to be ill equipped to meet demands of the consumer-driven services ecosystem effectively. Designed to cater to the first generation push-driven services models, wherein operators offer a relatively narrow range of broad-appeal services, existent business models requires extensive efforts to develop, launch and market with

USD 1972 Source: World Bank Mobile Subscribers Sri Lanka

increasing time-to-market as well as cost overheads . The built in challenges include: Net Additions Growth

Protracted Time to Market

Against a market background of strong competition and the need to differentiate services effectively, the operators demands for flexibility were twofold- innovate and implement services quickly to capture new customer segments and respond with agility to market development and technology evolution. VAS services typically have a short lifetime and operators need to continuously innovate and differentiate VAS services portfolio . The novelty factor can place the operator ahead of competition and improve market share. However, current business models, wherein the operator needs to devote significant resource in assessing applications, negotiating agreements, integrating applications and measuring performance of applications, extends the concept to market time and adversely impacts overall competitiveness.

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Sub-Optimal Cost Structures

The high-volume services model, wherein operators need to constantly

launch new services places tremendous pressure on the operator to maintain strict control over CAPEX and OPEX levels and improve business process efficiencies to ensure a sustainable business model. Prevalent business models built around license, maintenance fee and in-house operations meant high initial Capex and sustained ongoing Opex costs. Due to high and unpredictable growth, operational efficiency optimization and economies of W hat is the breadth and quality of V AS s olutions and related operations experienc e that the Managed V AS S ervic es partner has ? W hat is the level of c omplex s ys tems integration expertis e and program management c apability does the partner have? Does the partner have experienc ed in-hous e des ign, planning and engineering capabilities in the V AS domain? C an the partner offer an end-to-end s olution: infras truc ture, hardware, applications , operations , etc. through a managed partner ec os ys tem whic h is s calable? W hat levels of s ec urity c an be

Vendor Selection Questions

scale were difficult to achieve while undertaking rapid deployment of a large number of services and catering to subscriber growth at the same time.

Variable Service Experience

Customers demand a uniform experience across multiple services. .A complex multi-vendor environment brings with it widely varying policies, processes and approaches that affect governance and service management. In the current VAS management models, the operator typically has contractual node-level SLAs with each supplier. These SLAS do not

guarantee a uniform experience in event of in the event of multi-node, multipath and multi-bearer service transaction flows. For instance, a mobile

recharge service transaction initiated by the customer is routed via the SMSC, USSD or the WAP Gateway to the Recharge System which in turn interacts with the IN and routes the response via the access channel selected by the customer. The transaction needs to be completed in a certain time frame, usually 3-5 seconds. Current SLA driven per node service

management models however do not provide a mechanism to monitor the overall service path, which reduces service quality and impedes the efficiency of end-to-end service delivery.

Wide Competence Gap

To cater to a multi-services environment that is changing quickly, the operator needs to collaborate with a diverse and growing number of third party providers from other sectors. For instance, today the mobile and banking, healthcare, entertainment and media industries are converging to offer a range of convenient, lifestyle services to consumers. The growing complexity of these services adds up to a substantial competence need, requiring a global resource pool of experts who bring in not only product and domain expertise but also experience in cost-effective service delivery. Having an optimal mix of expert resources, which maps to business demands is impossible without incremental cost implications.

provided? W hat are the capabilities on network and s ervic e layer management? W hat kinds of training s ervic es can be made available?

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Poor Risk Management

In a consumer driven VAS economy, the operator needs to maintain a richer portfolio of services and constantly faces choices: which services to deploy for which segments and with each choice entails risk. Further not all services would be successful and understanding the opportunity cost associated with each decision requires due diligence and analysis. Current business models however offer limited risk sharing options high risk of being saddled with under-performing assets E ffic ient governanc e organizations and there is a Vendor Selection Recommendations Operators should have a clear detailed bus ines s plan to detail the s c ope

Diluted Business Focus

The current business environment for VAS services places a heavy emphasis on managing multiple players and services in the VAS ecosystem. The

s hould be es tablis hed, ens uring good operator c ontrol whils t providing s uffic ient freedom s o as not to hinder the realization of full bus ines s value for both parties T he operator s hould ens ure that the Managed V AS S ervic es provider (MS P ) has c ons iderable human res ourc es expertis e MS P s hould demons trate a drive towards s tandardized s ervic es to ac hieve a s us tainable s olution for the operator It is c ruc ial that the operator s elec ts a MS P with extens ive knowledge of the operators c us tomers MS P mus t demons trates c ompetenc e in not only V AS areas but als o telec om
Source Comviva

issues surrounding sourcing and integrating content and services, and refining agreements take considerable time of the business as well as the management agenda, compromising the operators ability to focus on business issues. Drivers for Managed VAS Services

network areas

The bottom line was that in order to profitably take advantage of end user demand and willingness to pay for converged, blended services, Airtel Lanka needed to adapt a radically new business model to streamline VAS

management to speed up innovations service delivery, streamline operations enhance service experience and improve overall financial performance.

Transformative outsourcing models such as Managed VAS wherein Airtel transfers complete responsibility of end-to-end management of its multivendor VAS network could help address these imperatives.

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Managed Services: Driving Top Line Growth

Airtel Lanka after a rigorous, due diligence process selected Comviva Technologies as its Managed VAS partner for the following reasons:

Strong VAS domain expertise with over 10 plus years of experience in

multi-technology, multi-vendor VAS environments and a track record of deploying solutions in 120 networks across the globe

Managed VAS Sub-Components

Managed Network VAS Architecture and Planning VAS Sourcing VAS Integration and Deployment VAS Consulting

Strong understanding of emerging market operator reflected in experience

of developing, deploying and delivering end -to -end integrated VAS solutions for 100 plus networks in emerging markets

Global VAS Operations Center (VOC) for service monitoring and uptime Established practices and processes in service delivery, network
operations and human resources, including skills mapping and change management. The multi-year deal entrusts responsibility of complete VAS operations to Comviva. The Managed VAS Services model supports operator brand differentiation by enabling faster time to market, greater innovation and service excellence to drive VAS revenue growth. Further Airtel Lanka is able to focus on core competitive advantage namely managing the customer base as well as managing the marketing mix to ensure a satisfied and loyal customer base. Comviva Managed VAS Services provides a standardized three tier framework for outsourcing VAS which includes: Managed Revenues Revenue Share Agreements Managed Capacity Capacity Monitoring Capacity Upgrades Managed SLAS Service Management Operations Service Support Service Monitoring Security Management Back-up Management

Managing VAS Ecosystem Planning & Design

The emergence of multiple technologies and standards for VAS implies significant effort in designing and building a scalable, high-performance and cost-efficient VAS network. Comviva manages the end-to-end VAS network and platform design which includes solution architecture, sourcing, planning, provisioning, integration and management. A key aspect of the Managed Network component is to integrate, wherever possible, the VAS products/applications into a seamless architecture, which is best, suited for operations, maintenance, management, and also business needs and business models of the future. Optimal VAS network design

Revenue Reconciliation and Settlement Revenue Reporting and Analytics Revenue Enhancement o o Subscriber Segmentation Targeted Promotions

Business Enhancement o New feature addition in line with current trends o o o Pricing Strategies Competition Analysis Market mapping

principles adopted by Comviva for Airtel Lanka include a platform-based approach to VAS service delivery and management, which leverages a set of common functional blocks that can be shared across multiple services running on the network. The shared capabilities implemented on the network to support the execution and management of value-added services on the operators network include Common Application Enablers, Common Service

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Provisioning and Charging, Common, User Handling and Common MIS

Managed SLAs
Under the collaboration arrangement with Comviva, Airtel Lanka specifies the SLAs to be achieved, based on clear business priorities and keeping in mind the implications for the network, infrastructure and operational requirements and end user service requirements. In accordance with contractual service

level benchmarks, Comviva implements processes and tools to manage, maintain, measure and monitor all service aspects related to connectivity, performance, and availability to deliver the expected high quality of VAS services.

Client Speak

The partnership with Comviva for

Managed VAS Service provides us a distinct completive edge in the dynamic marketplace. Our service rollout rate is faster than competition and significantly, we are able to achieve this at a lower cost ratio. We are successfully running operations for a 2 millioncustomer base with a 3-person inhouse VAS marketing and operations team

Managed Capacity
Comviva proactively monitors and tracks capacity utilization across multiple VAS nodes and scales the capacity of the components delivering the service in-time to meet the growing demands. For example, in the event the operator deploys a new SMS-based service, there may be a need to upgrade SMSC capacity to handle the additional traffic load efficiently. Comvivas Managed Capacity services alerts the operator in time to enable the operator to acquire additional system capacity on an on-demand basis. As a result, Airtel Lanka benefits from optimization of cash flow and capital employed

Managed Revenues
Managed Revenue Services include a complete suite of marketing services such as analytical support, customer intelligence, promotional drives, and loyalty campaigns to drive service usage and revenue growth. In addition, third party partner reconciliations and contract management delivers clear opportunity to the operators teams to focus on the core product conceptualization and marketing activities.

Vidur Ratan Director VAS Operations Airtel Lanka

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Market Launch
In January 2009, Airtel Lanka launched operations with a compelling portfolio of VAS services. By outsourcing the management of VAS services to

Comviva, the operator succeeded in launching the network and allied services within a period of 5 months, the fastest network launch in the region. The speed of service deployment was crucial to gain fast market entry and to deliver the predicted financial results.

Service Management
Management and s takeholder level buy-in on the c oncept and belief in the immediate and long term benefits . A c lear bus ines s plan with objec tives and expec tations from the s c ope of the engagement C o-developed and effic ient governanc e organization to ens ure healthy c ontrol whils t providing s uffic ient freedom s o as not to hinder the realization of full bus ines s value R elevant domain experienc e bac ked by adequate human res ource c ompetenc y and s trength E s tablis hed and demons trated proc es s es and practic es to render s us tainable and s tandardized

Key Go-to-Market Achievements

Source: Comviva

Currently, Comviva manages 41 VAS services which service over 2 million plus mobile customers. Of these 41 VAS services, Comviva provides 30 services, with the remainder provided by third party VAS providers.

s ervic es E xperienc e and expos ure to end c us tomers of the operator S ound financ ial s trength and bac king to manage and deliver on long term partners hip engagement

Partner-friendly Ecosystem
By entrusting the end-to-end management of the complete suite of services to Comviva, Airtel Lanka could exploit Comvivas significant expertise in deploying, and managing innovative VAS and support services. The partner and the ISV ecosystem were engaged from the beginning with collaboration goals shared among all.

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Figure 6: ISV Engagement

Vendor
Comviva

Product
Lifestyle Solutions (Content Management System, Video Voting, RBT, Music on demand, MCA, Voice Portal, Voice SMS, Dating Portal, Integrated Call Manager) Messaging (USSD, Bulk Messaging IMPS, Subscription Engine, Phone Back-Up)

Source: Comviva Internal Research

Mobile Business Solution ( Winback System) Acision Messaging (SMSC, SMS Gateway, SMPP Proxy, Campaign Manager, MMSC, WAP Gateway, General Billing Gateway mFormation Device Management, mFormation DB Roamware Roaming Replicator Outreach Messaging Virtual Home Environment (Short Codes and Smart Call Assistant) Smart Gateway Location Register with Inbound Roamer Traffic Management System

Managed VAS Process

A high-performance governance process ensures partnership objectives are met on on target. Comvivas Managed VAS outsourcing model has a clear governance structure defined in collaboration with Airtel Lanka. The governance model was designed to:

Set expectations, goals, and measurement methodologies. In conjunction

with the operator, Comviva established a well-defined process of rewards and penalties which are mapped against agreed key performance indicators (KPI)

Expectations, goals, and measurement methodologies - Comviva has a

well-defined proprietary process rewards and penalties KPI process

Form project and governance teams to monitor the performance of

services closely. Comvivas Managed Services Operations team and Airtel Lanka Technical Operations and Marketing teams conduct weekly meeting to map services progress, refine goals and resolve issues if any

Establish clear accountability and provides an escalation path for issue

and dispute resolution.

Leverage emergent technologies to keep pace with customer demand for

new services and drive revenues. Comviva and Airtel Lanka draw biTransformational VAS M 9 Comviva Technologies Ltd.

 annual road maps for new services launch. Provide appropriate processes to change the scope and the terms of the
contract, if needed

Offer a vehicle to strengthen research and development capabilities and

leverage new technologies to help customers solve complex problems in novel ways. Comviva and Airtel Lanka draw quarterly and annual road maps for new services launch

Engagement Models
Comviva offers a range of models to meet operators commercial engagement preferences for Managed VAS services: Asset based model A fixed monthly charge based on Asset weightage of the scope to be managed based on the overall nodes, hardware and software numbers and cost

Provide an appropriate process to change the scope and terms of the

contract Fig. 7: Managed VAS Services Governance Model

Per subscriber model A fixed revenue per subscriber of the operator depending on the scope

Per transaction model Revenue based on each transaction performed on the VAS Revenue share model
Source: Comviva Internal Research

Share of VAS or Overall Revenues based on the scope and anticipated

A circular flow of information between the three entities the executive review council, steering committee and operation team members ensures partnership objectives are met on time and on target.

overall investment of each partner

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Optimized Performance
Accelerated Growth
A strong focus on marketing and brand building backed by a compelling portfolio of VAS services and a trusted Managed Service framework enabled Airtel Lanka to make substantial inroads into the telecoms marketplace. The operator has recorded steady quarter-on-quarter growth in the number of subscriptions on the network. Within 15 months of the launch, the total subscriber base crossed the 2 million mark. Further, in Q2 2010, the VAS penetration (usage of at least one VAS service) was a significant 68% (the figure excludes person to person messaging). Fig. 8: Quarterly Subscriber Growth & VAS Penetration

Revenue Management Programs

Campaigns undertaken by Comviva to shore service revenues in April 2010 include: Gold Coin Promotion: CRBT contributes an approximate 40% to operator revenues. In conjunction with the operator, Comviva launched several campaigns to shore up service usage. Gold is a highly valued commodity among Sri Lankan customers. In May 2010, Comviva launched a gold coin campaign. Customers who purchased ring back tones within a certain time frame would be eligible to win a gold coin in a periodic random contest. As a result of this promotion, 110,000 customers were added to the service. Over 50% of these customers continue to use the service 3 months later

Source: Comviva Internal Research

Try and Buy Subscription Services: A select base of high ARPU customers received an offer for 30-day free access to paid content . At the end of the month, 40,000 new customers signed up for the service

Aggressive VAS Revenue Growth

The strategic partnership with Comviva has helped Airtel Lanka register healthy top line growth. In the fiscal year 2009-2010, the operator registered a significant 150% cumulative growth in VAS revenues. The average quarterly growth was 37%. Currently VAS contributes a healthy 13.5% growth to overall revenues earned by Airtel Lanka, higher than the regional average of around 10% observed at most other operators.

Service Cross Sell: Customers who purchased a Welcome Tone were allowed to snack on a variety of subscription based content for free, resulting in 10,000 customers signing up for the service

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Fig. 9: Quarterly Revenue Growth

Global VOC

Source: Comviva Internal Research

Assured Service Quality

Comvivas well-established practices, processes and tools for 360-degree services transaction monitoring guaranteed optimal service quality in line with contracted service level agreements (SLA). Airtel Lanka and Comviva, based on the business criticality, have segmented VAS services into two categories priority and key - and defined differential service levels KPIs for each of them. For priority, Category A services, the availability benchmark is set at 99.99% (Four 9s) and for key, category B services; the same is set at 99.9% (Three 9s).

Cost Savings
Between April 2009 and March 2010, Comviva Managed VAS organization achieved 99% compliance with contracted SLAs. Assured service uptime had a significant impact on reduction of costs as well as growth of revenues. Robust and Proactive service monitoring minimized calls to the contact centre, resulting in significant reduction in contact centre costs. Monthly, Airtel Lanka receives approximately 3,000 VAS related calls, which translates into 0.015 calls per customer per year. Further, optimal service quality enables the operator deliver the best possible customer experience leading to higher penetration levels for services.

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Fig. 10: % VAS Revenue Growth

Source: Comviva

Fig. 11: Service Uptime for B categories

Source: Comviva

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Rationalizes Opex and Capex

Cost structure optimization is a key source of competitive advantage. The Managed Services deal with Comviva enables Airtel Lanka to convert a significant part of capital outlay into operational expenditure. Further the operator realizes savings via operational efficiencies with reference to several areas including manpower, hardware, software and hardware and software costs C os t C omponent Manpower Resource Savings Savings 60% compared to competitors in the regions similar operations Call Centre Costs 70% compared to competitors in the regions similar operations Hardware Optimization Software Optimization 20% for US$1 million Bill of Material 25% capacity delivered on an ondemand basis prevents operators from over or under investments Service Retirement Costs Almost zero as the same hardware can be reused for another application/service
Source: Comviva Internal Research

Independent Opinion - IDC Comviva and Airtel deal places a new dynamic into the already

fragmented market of VAS solution offerings. For mobile and fixed line operators building out the enabling infrastructure and relationships to result in VAS offerings to their customers, the challenges of

keeping up with customer interests and motivations are great.

Especially as the network traffic accelerates with the use of mobile data through smart phones and dongles, the operators have a traffic management problem facing them as well as the challenges of

monetization. Operators need to seriously evaluate the variety of business models and relationships. Excerpted from IDC Insight Value Added Services Suppliers e Evolve, Elisabeth Rainge, Research Director IDC

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About Comviva
Comviva is a global leader in providing mobile solutions beyond VAS. With an extensive portfolio of products and solutions that encompass content, commerce and community-related offerings, Comviva enables operators to offer services that enrich mobile users lives. Comviva enhances operator efficiencies and revenue performance by adding value at every stage of the customer lifecycle from prepaid subscription and e top-up to customer care, and from real-time promotions and loyalty management to billing solutions. Comviva has extensive expertise in delivering and managing mobile solutions that extend beyond VAS, powering solutions to mobile operators in more than 85 countries worldwide and reaching over 600 million subscribers globally. Comvivas Managed Services for VAS is designed to help telecom operators address the complex challenges of deploying, operating and maintaining innovative, technologically advanced, evolving high availability and high performance VAS Services in a multi-vendor ecosystem to achieve competitive advantage. For more details visit wwww.comviva.com

Comviva's registered office is in New Delhi, India and the Head Quarters in Gurgaon (in the National Capital Region of Delhi, India). With R&D centers in Gurgaon, Bangalore and Mumbai in India, Comviva also has a significant presence in the Asia, Africa, Middle East, Europe and US Comviva Regd. Office
A-26, Info City, Sector 34 Gurgaon-122001 Haryana Tel: +91-124-4819000 Fax: +91-124-4819777

Sri Lanka Office

86, Maligawatte Road, Colombo -10

France Office Connell Speirs & Associates, 3 rue Leon Jost 75017, Paris (308 196 740)

Singapore Office
No. 10 Jalan Besar #11-05 Sim Lim Tower Singapore 208787 Tel: +6392 0021 Fax: +6392 0923

UK Office
Level- 1, Cyberhouse Molly Millars Lane Wokingham RG41 2PX Tel: +44-118-9890144 Fax: +44-118-9793800

Mumbai Office
Unit No. 1-4, 1st Floor Paradigm Tower Tower B, Mindspace Malad-West Mumbai 400064 Tel: +91-22-40774300 Fax: +91-22-40774333

South Africa Office

260, Surrey Avenue Ferndale, Randburg 2194 Johannesburg Tel: +27 11 293 0539 Fax: +27 11 293 0555

Bangalore Office
#4, 12th Km, Bellary Road Jakkur, Bangalore- 560064 Tel: +91-80-43401600 Fax: +91-80-28565854

Americas Office 1560 Sawgrass Corporate Parkway, 4th Floor Ste B, Sunrise, FL 33323 USA UAE Office Executive Suite, Y-43 P.O. Box 9242 Sharjah Tel: +9716 5571337 Fax: +9716 5571449

Kenya Office
Grant Thornton, Corner of Brookside Drive and Garden, Westlands, P.O. Box 410, Sarit Centre-00606, Nairobi, Kenya

Bangladesh Office
21, Purana Paltan Line (4th Floor), Dhaka

Ghana Office
36, Mission STR. Ext. Pokua House, OSU

Disclaimer The information in this document pertains to the period of January 2009 till June 2010 and may have changed on the date of reference. The information is accurate to the best of knowledge and belief of the market research team of Comviva. Any inaccuracies may be brought to the notice of the contact persons mentioned at the end of the document and Comvivas liabilities are limited to correction of the same in the next version subject to due verification of the inaccuracies intimated.

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