Evolution of Mobile VAS in India

Imperatives for Exponential Growth

Launch Presentation

July 2011 | A joint report by IAMAI and Analysys Mason

List of Sponsors

Platinum Sponsor

Gold Sponsors

Peer Review / Acknowledgements

Peer Review Steering Committee
We would like to thank the peer review steering committee for dedicating their time to this initiative and helping to identify the key issues to focus on. Producing this report would not have been possible without their inputs and feedback
Parag Kar VP, Government Affairs, Qualcomm (India & South Asia) PG Ponnapa Chief Executive Officer- India/Asia Pac, MPortal Sanjay K Goyal Founder & CEO, ACL Wireless Dr. Subho Ray President, IAMAI Vijay Shekhar Sharma Chairman & MD, One97

Acknowledgements
We would like to acknowledge the following people for their extraordinary contributions
Anand Virani Business Development Lead, Services Ecosystem, Qualcomm (India & South Asia) Chirag Jain Vice President - Marketing & Business Development, Webaroo Mohit Narain Business Director, ACL Wireless Rakesh Mahajan Independent Consultant

Global Experience

Global experience suggests that India has an opportunity to be a leading mobile first market for data
Share of Non-Voice Revenues1 by Carrier, Country (%)
60%

Messaging Driven Market

Messaging dominant markets with

high base of non-voice revenues

45%

Philippines
High Growth post 3G
2

30%
China: ~4.8%, 28.2%

Markets that have witnessed an

average change3 of ~4% per year since 3G

Malaysia, Brazil
3

15%

Malaysia: 21.8%, 64.1%

Moderate Growth post 3G

0%

S Africa: 8.2%, 8.7%

Brazil: ~16%, 45.0%

Markets that have witnessed an

average change3 of ~2.5% per year since 3G

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 201 0

Large potential for long term growth

due to the lack of alternate access mechanism

China

4 Unicom, China

Vivo, Brazil Maxis, Malaysia MTN, South Africa

Globe, Philippines AIS, Thailand Vodacom, South Africa 6

Smart, Philippines 5 Telkomsel, Indonesia

S Africa, Indonesia, Thailand & China

Launch of 3G Services

Legend2: Country: PC Penetration, Internet Penetration

Note: 1. Non-voice revenues includes revenue from messaging, data usage and other non voice related activities; 2. PC penetration figures are for 2005 and Internet Penetration figures are as of 2006; 3. Average yearly change in share of non voice revenues (within total revenues); 4. China Unicom was considered rather than China Mobile, because the latter launched 3G with TD-SCDMA while the former did so with W-CDMA / HSPA; 5. Smart launched 3G services in Q106; 6. Vodacom launched 3G services in Q404

Source: Analysys Mason, Wireless Intelligence 2011, Telegeography

Mobile VAS Overview

Structural enablers in the market also indicate that the MVAS industry is at an inflexion point
Share of GPRS Enabled Handsets in Total Handset Sales DEVICE

The device landscape in India

has changed significantly with the entry of local Indian handset OEMs

Indian Music Industry Revenues by Component (2010)

10% Others
Digital Music

CONTENT

Wider variety of VAS content

and services available to Indian user today; carriers have become significant distribution partners

65% 51%

Data enabled devices (both

GPRS and 3G) now constitute ~70-80% of the installed handset base
Physical Music

41%

App stores with inventories

into the millions across multiple categories and genres are being launched by carriers, handset OEMs and third party stores

49%

2009

2010

Data (2.5G) Plan Tariffs (INR)1

ACCESS

Mobile data is now widely

accessible with carriers launching 3G services

Active Mobile Data (GPRS) Users in India

DEMAND

The complete ecosystem

across devices, access and content is resulting in growing demand from consumers for mobile internet services

75

450

Low sachet pricing and pay90

1

per-site are encouraging penetration of data services adoption

30

2008

2010

CY2008

CY2010

Note: 1. Estimated price for entry level plan with unlimited monthly data usage

Source: Analysys Mason, FICCI Frames 2010, Company Reports

Mobile VAS: Challenges

However, key market and policy enablers in the on-deck, off-deck and SMS markets will be imperative for growth
Key Issues
Challenges for On-Deck VAS1 1. Carrier control 2. MIS reconciliation 3. Dispute redressal

First Order Impact

Market inefficiencies resulting in
perceived scalability constraints for VAS providers

Second Order Impact

Affordability Price points for VAS remains flat, due to lack of competitive offerings

Focus of platform providers shifting to

international markets to drive higher revenue from their offerings

Ecosystem Evolution
Lack of innovative product and service offerings, with VAS providers focusing on mass market services

Challenges for Off-Deck VAS2 1. Lack of alternate payment channels 2. No control over end user pricing 3. Skewed revenue shares when using carrier billing

Perceived scalability and profitability

constraints for D2C models, due to high % of billing share, and lack of alternate billing models

Companies focusing on basic mass

market offerings which can drive volumes in alignment with carriers

Consumer Welfare Lack of consumer interest protection, with no clarity on data charges and pricing for SMS/calls to short codes

Challenges for SMS adoption 1. Limited understanding of English / Roman characters

Addressable base of SMS limited,

with only 47% penetration Investments for Scalability Limited investment in this sector due to perceived risk around carrier control on revenue shares and billing

Mobile marketing / advertising on

SMS also constrained

Note: 1. On-Deck VAS: Value added services which are available through the carrier; 2. Off-Deck VAS: Value added services which are available through D2C models

Source: Analysys Mason, Industry Inputs

Mobile VAS: Recommended Solutions

Global experience suggests that a policy framework without licensing and market determined revenue shares is the right way forward
1. Policy Framework without Licensing Position 2. Licensing with Market Determined Revenue Share 3. Licensing with Policy Determined Revenue Share

No separate VAS license needs to

be issued but a policy framework to support VAS providers is required

A broader licensing framework, which

leaves revenue shares to be driven by market forces

A focused licensing regime needs to

be in place for VAS, including regulation recommending minimum revenue shares

Licensing will ensure that the VAS Revenue shares should be left to
Rationale
market forces, as that will help drive innovation industry gets support on critical issues such as MIS reconciliation and dispute redressal

Revenue shares remain a critical

element in the mobile VAS ecosystem and are currently hampering growth and investment in the industry because of their low levels

Creating licenses will increase the

costs of the MVASPs and innovation will suffer as smaller VAS providers will not be able to bear the attendant costs of a license

Revenue share is a commercial

agreement between entities and cannot be mandated by the Government

Once revenue shares are regulated,

other operational issues such as MIS would also get addressed

Once off-deck services gain traction,

market forces will drive revenue shares without intervention

Formation of a self governed

Potential Solution
industry forum to formally represent the VASPs

A VAS licensing framework that will

regulate MIS, dispute redressal and other issues, but will leave revenue shares to market participants

A VAS license framework that will

regulate revenue shares, and recommend measures for implementation and monitoring

Formation of a premium number

policy which will govern the operation of short codes

Source: Analysys Mason, Industry Inputs

Mobile VAS: On-Deck VAS Providers (Recommended Solutions)

For on-deck, an industry self-governing board that can act as a formal forum for participants in the MVAS ecosystem can be beneficial
On-Deck VAS

Formation of an Industry Association for Mobile VAS Providers in India

IAMAI

COAI / AUSPI
Formation of an MVAS Authority

1. Self governing VAS forum 2. Board can draft guidelines for MIS reconciliation between mobile VAS providers and carriers 3. Act as a forum for grievance redressal and issue directives for action

MVAS Industry Governing Board

MVAS Services Providers

Members From Stakeholders Across the Value Chain

Handset Manufacturers

4. The functioning / structure of the board can be modeled after the ASCI1

Technology Platform Providers

Carriers

Note: 1. ASCI stands for Advertising Standards Council of India

Source: Analysys Mason

Mobile VAS: Off-Deck Providers (Challenges)

However, billing remains a major issue in addition to carrier control over end user pricing of off-deck services
Off-Deck VAS

End user Price for Voice and Non-Voice Offerings in India (2007 & 2010)1
INR
30 30 30

ARPU vs. Price of Popular Game in Different Countries (INR)2

INR 2500

(2%)

2171.7 2000
(3%)

20

1507.5 1500
15 15

10 10

10

10

10

10

1000
(10%)

(17%)

722.3 500
3 3 3

444.6
(33%)

161.6 54.0 0 India

44.6 USA
ARPU

42.8 UK

44.6 China

119.7 Malaysia

0 Voice (10 mins call)1 Premium Mono Tone Poly Tone Wallpaper CRBT SMS Download Subscription

2007

2010

Game Price

Note: 1. For a 10 minute call; 2007 rate assumed at INR 1 per minute, 2009 rate at INR 0.5 paisa per second, Cost of per transaction for SMS, monotone, polytone and wallpaper, monthly subscription for CRBT; 2. India (Paid game on Indiatimes), USA, UK, China (Paid game on Apple Apps Store), Malaysia (GamesUnlimited; Maxis games site); Most games in China are cracked and available for free. Number in parenthesis indicates the cost of game as a % of ARPU

Source: Analysys Mason, Wireless Intelligence, Industry Inputs

Mobile VAS: Off-Deck Providers (Recommended Solutions)

10

A policy framework (without licensing) that will mandate a premium number policy can potentially address the challenges for off-deck billing
Off-Deck VAS

Proposed Framework for Premium Number Policy

Central Short Code (CSC) Agency Created & Mandated by TRAI
Short Code Operational Across Carriers

Short codes
allocated and maintained by this central agency

CSC agency to be set up as a

licensed entity under TRAI

Licensing of CSC agency allows it to

enter into agreements with other licensed entities

Carrier 1

Carrier 2

Pan India access

Carrier n

across all carriers

Mandated
Host carrier pays VASP; Keeps share to cover interconnection and other costs turnaround time of activation across carriers

TRAI to mandate a Rate Card under

IUC regulations, which includes billing, origination and termination charges for carriers whose customer originates service access request

User Billed by carrier for service

This policy will guarantee pan India

access across all carriers

VAS Provider Offers

Services to Users Across Carriers

VAS Provider

Service Flow

Revenue Flow

Source: Analysys Mason

Mobile VAS: SMS (Challenges and Recommendation)

11

Mandating the incorporation of a standards based local language solution on all handsets can help drive SMS penetration
SMS Penetration

SMS Penetration, 2010

100% 80% 75%

Enablers: Local Language Support on Handsets

100%

Mandate standardization of character set of local

language fonts

50%

47%

Partnering with an organization like CEWiT and others to get key standards in place for:
Indic 7-bit encoding (improves text payload in a SMS) Simplified Indic keypad design (to make user adoption easy) Memory efficient font libraries (critical for distribution and field support)

25%

Philippines China India

0%

Mandate incorporation of local language

Apart from lower SMS pricing in Philippines and China than
in India, the ability to message in local language is the key driver for high SMS penetration

standards on all handsets sold in India

Different handset OEMs use their own proprietary standards

for Indian language text, creating interoperability issues

Partnering with top handset vendors to motivate adoption of new standards by mid-2012 and launch of an industry-wide education campaign

Source: Analysys Mason, Centre of Excellence in Wireless Technology (CEWiT) India Reports

Mobile VAS Trends

12

In the future, emerging areas of m-commerce & advertising, and changes in the VAS value chain will modify the way services are consumed
Backward integration across
the three segments e.g. TPE moving into content aggregation

Easy integration of VAS products on

to the carrier SDP / network With initiatives like START/STOP, focus is on enabling users to experiment with multiple products

Carriers offering ad-based services

for secondary revenue streams Partnering with payment companies for additional revenue from mobile shopping and remittance

UGC gaining adoption

Content Repurposing / ISV4

WAP Carriers Content Developer UGC Content Aggregators Product/ Apps Device Integration Voice Handset OEM 3rd Party VASP WAP SMS1 Online Retail Online SMS Voice

Carrier Billing MPG2 Ad3 Cash/ CC/ DC Carrier MPG2 / Ad3

Technology Platform Enablers

Advertising/Profiling/Relevance Platform Mobile Commerce Platform

Managed Services / Network OEM /VAS SI

Handset OEM is
offering VAS under its brand on multiple sales channel: online, retail and mobile D2C players using alternate payment channels

Carriers deploying
profiling / relevance platform for better targeting Ad-networks forming dedicated sales force to sell branded inventory

M-commerce solution
provider with one or more capabilities such as mobile payment, mobile banking, money transfer and mobile shopping

Network OEMs are

providing technology platform for carriers, e.g. Network OEM CRBT platform integration in carrier network

Note: 1. STK embedded content is included in SMS; 2. Mobile Payment Gateway; 3. Ad based revenues; 4. Independent Software Vendor

Source: Analysys Mason, Industry Inputs

Themes Introduction

13

Based on these structural changes and market trends, we have identified nine themes which will have a significant role in shaping MVAS in India
Category
Category Themes

Current Situation

Key Trends

Commerce Entertainment
Services

Current scalable models use prepaid cards, and not

mobile; pilots by carriers, banks, D2C

UID accepted as KYC will increase share of G2C; carriers

pushing financial inclusion also a key driver (banking, domestic remittances)

Services around music and gaming has seen early

adoption among mid ARPU segment

New products such as streaming music, full song download

and mobile games

3
Consumer VAS

Utility Services Community Services Mobile Video Device Apps and App
Stores Network VAS

Multiple pilots, with few scalable models (e.g. RML,

IKSL), Location based services

Utility apps and affordable feature-phones to drive adoption

of productivity and livelihood enhancement services

Carrier promoted SNCs (e.g. AirtelFrenz)

aggregating audience on an ad monetization model

Emergence of new monetization models based on micro

transactions, content sales (e.g. Rocketalk) with carrier marketing support, and increased off-deck usage

Limited services on EDGE with very poor user

experience

Launch of 3G services by 2011 by all major carriers, with a

strong video services portfolio (e.g. mobile TV, video calling)

Carrier app stores dominate; D2C app stores facing

issues of billing as credit card penetration is low

Emergence of affordable android based phones, app store

push by handset OEMs, launch of 3G, utility apps (e.g. railway booking)

Network Services Mobile Ad / Marketing

Among all the network services such as CRBT, CMS,

Roaming, Recharging, Location Enablement, CRBT contributes significant share to total MVAS market

CRBT has reached a mature level of adoption, while few

network services such as voice mail is limited by cultural and price points

8
Enterprise VAS

SMS / display ads used for lead generation and

digital content sale; poor user experience

3G and better device form factors expected to enhance

effectiveness of display advertising and help ecosystem growth

Enterprise Solutions

Enterprise messaging solutions (e.g. Valuefirst) ,

Sales force management

Emergence of enterprise mobility providers with vertical

specific, carrier / software agnostic middleware solutions (e.g. Mobien)

Source: Analysys Mason

Mobile Data

14

There appears to be a latent demand for connectivity in markets with low PC / internet base as India, which gets fulfilled by mobile internet
Trend of Non-Voice Revenue and Mix (Messaging vs. Data and Others)
% of Non Voice Revenue 30.4% 33.6% 12.1% 19.4% 28.0% 30.0% 14.2% 23.4%

While traditionally, data access has

remained a small piece of the overall MVAS pie, recent trends suggest that crucial success factors for data access are now falling in place

10%

12%
44%

37%

Data growth will be dominated by

smartphone and dongle / CCD users, but emerging applications / services indicate that data usage can be driven on feature phones as well

62%

56%
52%

35% 76%
91%

38%

44%

53%
37%

56%

63%

24%
9%
Q1 2009

Q3 2009

Q1 2009 Q2 2010

Q1 2009 Q1 2010

Q1 2009 Q2 2010

Maxis

Vivo

Telekomsel1

Vodacom

Social networking has exploded as a service in India, and carriers and handset OEMs are increasingly promoting SNC applications on their networks / devices

Data

Messaging

Others

Note: 1. For Telekomsel some share of other VAS included within data

Source: Analysys Mason, Industry Inputs

App Store

15

It appears that a scalable model for app stores in India would be carrier app stores in partnership with OEM / OS companies
Three Kinds of App Store Current Mapping of App stores and CSF1
Revenue
Developer Community

Carriers have a strong hold in Critical Success Factors Carrier App Store
the value chain of mobile applications. They provide seamless billing and multiple business model

share is less No developer forum, except Airtel

High rev share Provides

continuous support to developers

Provides high
revenue share to developers

Better profiling
User Experience / Relevance

Profiling based
on handset model Better user interface

App Store

OEM / OS with their better OEM / OS App Store

relationship with developers provide rich portfolio of mobile applications

of its subscriber Poor user interface

Better user
interface

Seamless
Monetization / Billing

Unable to
implement single click checkout and subscription plan OEM / OS

Unable to
implement single click checkout and subscription plan Third Party

Third party app stores such as Third Party App Store

by Getjar have the lowest share today of overall revenues in the apps market in India

billing Ability to implement subscription model Carrier

App Stores
Favourability of CSF1: High Medium Low

Note: 1. CSF stands for Critical Success Factors

Source: Analysys Mason, Industry Inputs

Mobile Community Services

16

Emerging services within mobile VAS also include social networking, instant messaging and microblogging
Classification of Mobile Community Services based on Primary Service
Primary Service

Business Models for Mobile Community Services

Mobile Extension of Online Community Services

Description

Key Service Providers

Includes sharing of
Social Networking Community multimedia content along with posting status messages to a group of friends

These communities are feature rich platforms that allows a wide range of activities including sharing of text, photos and videos in addition to playing games Broadband connection and a wide screen is required for taking advantage of the features available Mobile version, usually an application, is a strip down version in terms of features and allowed activities

Instant Messaging

Includes real time

P2P communication over mobile internet

Custom Built for Mobile (Mobile Only Services)

These communities have mobile as the primary access channel and the platforms are highly optimized for mobile usage

Microblogging

Includes sharing of
status messages only

Features offered through these communities are customized to work on slow 2G data channel, as well as other bearer channels
The primary target users are mobile first data users

Source: Analysys Mason, Industry Inputs

Utility Services

17

Livelihood enhancement services, especially in rural areas, will play a key role in the development of this sector
Use Case of Utility Services
Alerts related to crop price,
weather updates

Case Study
RML Information Alert Services

Description Provides
agricultural and commodity pricing information service via SMS

User base
~ 0.3 mn farmers have subscribed to RML (Q1 2010) So far, the service has reached more than 1 mn farmers across 15K villages (Nov 2010)

Pricing Price: INR 175

(USD 3.8) for 3 months; INR 75 (USD ) per month by Idea Cellular

Access to Information

Stocks and news alerts Location based services and

maps

Push email

Utility Services

Access to Opportunity

Mobile education, tutorials for

English in multiple language

Behtar Zindagi Mobile health LifeLines Education Mobile Education

Voice based rural

information services on livestock, mandi prices, fishery advisory and others Launched in March 2011

Subscription
fee: INR 2 for 1 day and INR 30 for 30 days and INR 1 per minute

Job listings on mobile Health support on mobile,

including regular health tips

Connects teachers
in rural areas with education experts whom they can consult on educational queries via IVR

Mobile governance services Access to Infrastructure

such as tracking passport application, details of utility payments

More than 25,000 academic queryanswer sets have been facilitated under this service in 2010 Over 180,000 customers across Delhi-NCR and Bihar-Jharkhand till October 2010

Transaction
charge of INR 5 (USD 0.1) per call

Financial inclusions via mobile

and mobile ticketing

Eko
Financial Inclusion

Provides financial
services to the unbanked population in urban as well as rural areas

Free

Source: Analysys Mason, Industry Inputs

Mobile Commerce

18

M-Commerce will be another critical growth driver with carriers and D2C providers experimenting with multiple models
Banking Domestic Remittance
Inter-state Remittance (2009) Domestic Remittance Size (Migrants) Via Post Office Via Friends & Family ~USD 12 bn ~USD 1.8 bn1 ~USD 10.2 bn

Mobile banking reduces the transaction cost for banks and

provides a convenient channel for account holders

Under the current regulations,

mobile enablement is possible only for domestic remittance

Mobile will add relatively higher value for serving the needs of the
un-banked segment for banking and remittance

BC based remittance will form

the dominant portion, driven by urban to rural channels. Users will shift to mobile remittance for convenience and cost

BC based banking is expected to be popular amongst the unbanked segment

However, given low deposits this does not translate into a

significant market opportunity

Informal (non-migrant) Average Annual Transaction Value per Worker

~USD 13 bn
~USD 150

G2C Payouts

Payments

BC accounts opened with UIDs

will enable the unbanked population to receive benefits from government

Under the current regulations, there are two models for payment
MGNREGA Project Districts covered Total Issued Job Cards (mn) Number of households benefited (mn) Budget outlay (USD bn) FY-09 615 FY-101 619

using mobile: linked payment instruments and stored wallets model

The linked payment model has witnessed some traction for utility
bill payments and some small value shopping

Government gives a lot of cash

benefits like old age pension, disability pension, widows pension and MGNREGA payment

100

109

The stored wallets model is relatively new, and has the potential
45 43

to gain traction for small ticket items and eventually as an alternative to credit cards for digital payment

6.5

8.5

However, regulations do not allow cash out, which can potentially

slow adoption as users are reluctant to lock in cash

Source: Analysys Mason, FICCI Frames 2010, Company Reports

Forecasts: MVAS Industry

19

With the above market and policy initiatives, MVAS revenues is expected to account for as much as 51% of incremental industry revenues in 2015
Mobile VAS Market Potential (INR bn) & Its Share of Telecom Revenue
31% 27% 22% 18% 16% 291 4 32 132 16 58 49 2011 368 6 34 159 19 62 88 2012 480 9 34 182 23 81 150 2013 603 14 35 202 34 28 123 148 31% 671 19 37 219

Indian MVAS industry will reach contribution

levels seen in other emerging markets such as

Malaysia and China

Data access will be the biggest revenue driver

based on handset based access and CCD / dongles

CRBT will decline in revenue contribution due to

poor per unit economics for carriers and end user affordability

213 2 28 96 13 48 25 2010

201

215

SMS penetration is expected to stabilize at the

current levels due to consumer behaviour and
literacy issues unless local language can be introduced

2014

2015

Mobile Internet (Handset) IVR CRBT Share of MVAS

Dongles / CCD Data Access Messaging Others1

Note: 1. Others include m-commerce and CMS

Source: Analysys Mason, Industry Inputs

Forecasts: MVAS Industry Data Users

20

This growth is driven primarily by a forecasted 534 mn data users in 2015 across 2.5G, 3G and 4G, contributing 54% of total mobile VAS revenue
Data Users (mn)

Of an estimated active base of 1.1 bn

534 66 420 48

subscribers in 2015, 154 mn subscribers are expected to access data on 2.5G and 314 mn subscribers on 3G

Adoption of mobile handset data will continue to

grow, with reduction in price per MB for HSPA data, increasing penetration of feature-phones and smartphones, as well as availability of content and applications

303 28 201 18 137 12 83 7 76 2010 2011 2012 2013 2014 2015 183 125 275 468 372

User base of 22 mn is expected on 3G handsets

in 2011, contributing a data ARPU of INR 133 in 2011 going down to INR 49 in 2015, with access accounting for a major share of the revenues

EVDO dongles are expected to dominate the

mobile broadband access market from PCs, as they provide relatively better capacity and cost per MB than HSPA

Handset Data Users

Dongles & CCDs

4G / LTE dongle and CCD base is expected to

reach 21 mn by 2015

Source: Analysys Mason, Industry Inputs

21

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