executive summary presentation

8/4/2019 Executive Summary Presentation

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2007 Stanford University & BDA

Executive SummaryDecember 2007

Mohit S. GundechaResearch AssociateStanford University

Prof. Tom KosnikFenwick & West Consulting Professor

STVP, Stanford University

Kunal BajajDirector India

BDA

Future of Mobile VASin

India


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Our special thanks to:

Eric Allen Wireless Advisor

Veerchand Bothra Author, MobilePundit

Nitin Brahmankar Director, IDT

Girish Trivedi Principal Manager

Deepshikha Garg

Rahul Gupta

Smita Sharma

BDA Team:


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The team followed the below process in a verylimited timeline, yet was able to gather extensiveprimary information from industry leaders

ResearchDesign

ResearchDesign

Primary Data: Interviewed 23 leading

VAS companies, each of the major telecomoperators and other industry experts

Primary Data: Interviewed 23 leadingVAS companies, each of the major telecom

operators and other industry experts

Secondary Data: BDADatabase & Reports

Secondary Data: BDADatabase & Reports

Why Mobile?

Why India?Why Now?

Why Mobile?

Why India?Why Now?

MobileMomentum

MobileMomentum

Sept 15 Sept 30 Oct 15 Oct 30 Nov 15 Nov 30

Stanford & BDA TeamSynthesis & Analysis

Stanford & BDA TeamSynthesis & Analysis


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Leading VAS players in India profiledduring project


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Table of Contents

Indian Telecom OverviewIndian Telecom Overview

Introduction to VAS in IndiaIntroduction to VAS in India VAS Value ChainVAS Value Chain

Key Challenges & Hurdles TodayKey Challenges & Hurdles Today

VAS Outlook for IndiaVAS Outlook for India

Addressing Challenges & HurdlesAddressing Challenges & Hurdles

Assessment of Applications & ServicesAssessment of Applications & Services

ProjectionsProjections
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Population 1.112 billion

Fixed Subs 39.41 mill ion (Oct 2007)

Mobile Subs 217.14 mill ion (Oct 2007)

Internet Subs 9.22 mill ion (Jun 2007)

Broadband Subs 2.67 m ill ion (Sept 2007)

Source: TRAI, COAI, AUSPI, BDA Analysis

Despite the continued record growth over the last 12 months, only 23.07% of the countrys1.1 bn population owns a telephone, which points to a situation where growth is expected tocontinue and even accelerate

The Big 4 continue to lead in market share, but BSNL is losing ground to the other 3 quickly

Interesting Market Facts

Indian telecom overview

Note: Mobile subs data includes fixed wireless customers

Operator Market Share (Oct 2007)

Airtel

23.4%

Reliance

17.4%BSNL

16.1%

Idea

9.0%

Vodafone

17.1%

Others

7.7%

Tata

Teleservices

9.3%
http://bdabjfl01/Share/CCD/Projects/Archive/Old%20Projects%20to%20October%202002%20-%20A/BDA%20Database/World%20Factbook/flags/in-lgflag.jpghttp://bdabjfl01/Share/CCD/Projects/Archive/Old%20Projects%20to%20October%202002%20-%20A/BDA%20Database/World%20Factbook/flags/in-lgflag.jpg


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5.3

5.9 6.1

6.7 6.86.5

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8.18.3

7.88.0

5.0

4.34.8

3.9

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Million

Micro

PrepaidT

akeso

ff

Launch of 999 scheme

Market continues to show a trend of over 7million net subscriber additions in a month

Penetr

ation

inB&CCir

cles

Verification ofsubscribers

Launch of INR 777 Handsets /Lifetime Prepaid Below INR 500

Record Additions in a month

Source: TRAI, Morgan Stanley Research, Telecom Watch, BDA Analysis

Net new additions continued to be high but less than the last couple of months.

With aggressive rollout targets by operators such as Airtel who plan to expandcoverage to rural areas, the trend of new subscribers additions will continue


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Rules of the game

Source: BDA Analysis

Declining Tariff

Declining Handset Prices

Innovative Pre-Paid Tariff Plans

Unprecedented Growth

0

100

200

300

400

500

2003

2004

2005

2006

2007F

2008F

2009F

2010F

WirelessSubs(mn)

ImprovedRegulatory Structure


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Over the recent years, most new subscribers beingacquired have been low-end users, resulting infalling ARPU

Source: Company Information, TRAI, BDA Interview and Analysis

0

500

1,000

1,500

2000 2001 2002 2003 2004 2005 2006

0

50

100

150

200

Subscriber Base (mn) ARPU (INR/Month)

ARPUs are dropping as volumes increase

With increased competition, tariffs of voice calls have gradually declined over the years

Most of the subscribers added are from the bottom of the pyramid with low usage resulting in

reduced ARPU Operators are focused on acquiring customers. The fall in ARPU will continue unless

operators look at alternative revenue streams like VAS

It is unlikely tariffs will increase given aggressive competition between operators to add subs

Spectrum allocation based on subscriber linked criteria has pushed operators to focus more on

acquiring subscribers

Mobile ARPUs are Declining Precipitously

ARPU(INR)

Subscriber(mn)


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Growth is taking off in semi-urban and rural areas

Growth is taking off in semi-urban and rural areas

Growth is continuing inmetros and urban

Growth is continuing inmetros and urban

USO will help continue todrive coverage gains

USO will help continue todrive coverage gains

Operators and handset vendors must adapttheir strategies to serve the Bottom of thePyramid

Operators and vendors must adapt their

strategies and distribution to meet this new growth

Operators and vendors must adapt their

strategies and distribution to meet this new growth

Grow th is fastest at the

Bottom of the Pyramid



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Table of Contents









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40.0%

0.5%

15.0%

3.0%

5.0%

0.5%1.0%

35.0%

Indias VAS market estimates show aggressivegrowth and decreasing relative importance of text-based offerings

70.0%

1.0%

9.6%

1.5%

3.6%

0.5%0.6%

13.2%

Source: COAI, IAMAI, BDA Analysis

VAS services presently contribute 7% of the total telecom revenue for Indian operators

Non voice revenues have been increasing since 2000. The revenue growth is driven by

SMS (including P2P, A2P, P2A), contributing over 55% of the total revenues in 2006

Over the last three years the % share of revenues coming from SMS is on a decline as

other services, primarily CRBT / Ringtones gain

VAS Performance

2005 2006

Data and Voice Breakup

98% 96% 95% 95% 95% 94% 92% 93%

4% 5% 5% 5% 6% 8% 7%2%

2000 2001 2002 2003 2004 2005 2006 2007 F

Voice VAS

SMS (P2P)

SMS (A2P P2A)

CRBT /Ringtones

Voice

Games

Data

E-mail

Others100% = USD 438 mn USD 678 mn


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VAS today comprises of primarily SMS andcontent focuses on Bollywood & Cricket


SMS has been recently driven by voting based TVshows. Indian Idol alone received more than 5,400SMSs per minute during the last 9 voting days

SMS has been reinvented and adopted for mobile dataservices used by enterprises as well

Bollywood/Cricket

Bollywood/Cricket

SMSSMS

Rural VASRural VAS

IVRIVR

Bollywood is the killer content and is being used forring tones, CRBT, games and wallpapers

It is followed by cricket, around which most of the restof content is built and marketed

Niche applications like IVR have just started toemerge and have been successfully used in some of

TV shows, as well, for auditioning participants

Rural application initiatives have started primarily inpilots, but with innovative services like commodity

pricing, their utility is potentially very high in lessdeveloped geographies


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Table of Contents









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The VAS value chain consists of sixentities primarily involved in the flow

SI/NI

HandsetVendor

Aggregator

SoftwareDeveloper

TechnologyEnabler

Telco

Consumer

Content /Application Owner

Source: BDA Interview and Analysis, Industry Feedback

Internet Pipeline

Content Flow

Process Flow


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Network operators dominate the revenuesharing arrangement in VAS today

Source: BDA Interview and Analysis, Industry Feedback

End UserEnd UserEnd user paysfor the content

Operator keeps60 - 70% of revenue

Aggregators get approx20 - 25 % of revenue

Content / Application

owners get 10 - 15%of total revenue

Network OperatorNetwork Operator

AggregatorAggregator

Content /Application Owner

Content /Application Ow ner

Overall revenue share split of 70:30 between operators and VAS players applies

for both GSM and CDMA operators


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Table of Contents









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Operator ChallengeOperator Challenge

Device ChallengeDevice Challenge

Content Localization ChallengeContent Localization Challenge

VAS challenges

Operators focusing onsubscriber acquisition with noincentives to push VAS in light

of current spectrum allocationcriteria Spectrum constraints and delay

in 3G roll-out has substantiallylimited high-end VAS take-off

Operators focusing onsubscriber acquisition with noincentives to push VAS in lightof current spectrum allocationcriteria

Spectrum constraints and delayin 3G roll-out has substantiallylimited high-end VAS take-off

Providing feature-rich handsets atlow cost is a big challenge with GPRSenabled handsets still around INR2,599 (USD 63)

Pre-loading of applications byhandset OEMs has not really caughton yet

Providing feature-rich handsets atlow cost is a big challenge with GPRSenabled handsets still around INR2,599 (USD 63)

Pre-loading of applications byhandset OEMs has not really caughton yet

Operators havent done muchto customize content accordingto consumer behaviour

Limited availability of local webcontent and WAP versions ofwhatever is available

Operators havent done muchto customize content accordingto consumer behaviour

Limited availability of local webcontent and WAP versions ofwhatever is available

Value

AddedServices


User ChallengeUser Challenge

Operators not driving userawareness to promote various VASofferings

Ease of use, user interface andfamiliarity with medium of accesssuch as GPRS, IVR etc are some ofthe challenges for the end user

Operators not driving userawareness to promote various VASofferings

Ease of use, user interface andfamiliarity with medium of accesssuch as GPRS, IVR etc are some ofthe challenges for the end user

Revenue ChallengeRevenue Challenge

Ongoing tussle between operatorsand VAS companies for revenueshare continues

Since alternative models haven'tevolved yet, this has hampered VASinnovation

Ongoing tussle between operatorsand VAS companies for revenueshare continues

Since alternative models haven'tevolved yet, this has hampered VASinnovation


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Table of Contents


Introduction to VAS in IndiaIntroduction to VAS in India

VAS Value ChainVAS Value Chain







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VAS challenges moving on

Value

AddedServices


Challenge will be overcome

Challenge will continue to exist

Challenge may be overcome or

could continue to exist

Revenue ChallengeRevenue Challenge

Advertisements will be a new revenueavenue for VAS players and couldoffer them the independence theyneed to succeed

Mobile advertising will benefitoperators, advertisers, VAS players

and consumers

Advertisements will be a new revenueavenue for VAS players and couldoffer them the independence theyneed to succeed

Mobile advertising will benefitoperators, advertisers, VAS playersand consumers

User ChallengeUser Challenge

Traditional VAS SMS, CRBT andringtones will continue to grow withincreased awareness

Awareness will remain a problem foradvanced VAS services unlessmarketing is done by VAS companiesthemselves to educate users

Traditional VAS SMS, CRBT andringtones will continue to grow withincreased awareness

Awareness will remain a problem foradvanced VAS services unlessmarketing is done by VAS companiesthemselves to educate users

Content Localization ChallengeContent Localization Challenge

IVR will be a solution to locallanguage support

Creating the locally relevantcontent will still requiresubstantial investments

IVR will be a solution to locallanguage support

Creating the locally relevantcontent will still requiresubstantial investments

Operator ChallengeOperator Challenge

Regulatory uncertaintyaround spectrum is goingto continue to hinderpromotion of VAS

With 3G, operators willincrease their focus onmobile internet VAS forhigh end users

Regulatory uncertaintyaround spectrum is goingto continue to hinderpromotion of VAS

With 3G, operators willincrease their focus onmobile internet VAS forhigh end users

Device ChallengeDevice Challenge

Devices are no more a challengewith more features getting added atlower price points

VAS players and handset vendorsare forming partnerships to embedapplications

Devices are no more a challengewith more features getting added atlower price points

VAS players and handset vendorsare forming partnerships to embed

applications


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T bl f C


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Table of Contents









Industry sentiment gives a clear indication


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Industry sentiment gives a clear indicationwhere the revenues are likely to come from

Application For AgainstIndustryFeedback

Enhanced messagingexperience for users

Contextual targeting of users

Micro payment for merchantson the move, mobile vouchers

Remittance and P2P transfers

Full music download &streaming over 3G

Extension of current services

Platform for youth socializing

Online UGC/SNC gainingpopularity in India

Easy learning curve, regionallanguage content

Capable of replicating infoservice from SMS or WAP

Convince advertisers about SMS ads

Contextual advertising could be

intrusive in nature

Pricing and network quality / speedscritical for the success

Bandwidth hampers content sharing

Handsets deliver poor userexperience in viewing size & browser

Not affordable for the masses, due topremium charging on per min basis

Lack of refined digitized locallanguage content

As a cash & cheque country, will taketime for mass market to adoptmCommerce

Source: BDA Interviews and Analysis, Industry Feedback

SMSSMS

MobileCommerce

MobileCommerce

MobileMusic

MobileMusic

UGC/SNCUGC/SNC

IVRIVR

Industry sentiment about internet apps beingt d t bil i d i ll i l


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ported to mobile are mixed, especially given lowdata enabled handset penetration

Source: BDA Interviews and Analysis, Industry Feedback

Application For AgainstIndustryFeedback

Access IM on the move &

replicate internet experience

Across business segments willsee increasing adoption ofe-mail on the move

Access to quick, actionableinformation on the move

Useful for warehousing, fieldforce resource tracking and fleetmanagement for businesses

Premium charging for messages

Text entry, especially for locallanguage

Lack of digitized locally relevantcontent (e.g. listings, maps) in India

Low level of business computerization

Lack of detailed mapping content

User demand not significant

Handset cost & overall investment ininitial implementation is highdeterrent

IMIM

E-mailE-mail

SearchSearch

LBSLBS

Table of Contents


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Table of Contents









In the medium term most of the currentchallenges will be addresses by both


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challenges will be addresses by bothoperators and VAS players


2008-09 Trends

Continued low ARPU subscriber growth, forming

majority of net adds will ensure growth of

traditional VAS

Operators focus shifts from customer acquisition

to VAS promotion, but very slowly

Device challenge will start to decline

Primary focus on reinvention of traditional VAS

& early adoption of high end services

Medium Term Growth Driver

Overcoming challenges will rely on shifts in

industry direction caused by regulatory changes

like

Mobile Number Portability

Allocation of 2G spectrum

Introduction of 3G

Non-regulatory changes like

Availability of payment systems other than thetelco

Ad-supported VAS gaining ground, and thusconsumers and VAS companies gain power

Promotion of bundling data plans with voice

Large numbers of users experiencing internet for

first time on mobile devices

And continuation of ongoing trends

Product innovation and ease of use

Device improvements allowing more on the go

Shorter VAS adoption cycles

2006-07 Trends

Subscriber growth at the low end has led to

declining per capita VAS usage

Declining prices induced volume growth Cost of smart phones & features rich handsets

continue to decline, increasing adoption

2006-07 Trends2006-07 Trends

Subscriber growth at the low end has led to declining per

capita VAS usage

Declining prices induced volume growth

Cost of smart phones & features rich handsets continue to

decline, increasing adoption

Subscriber growth at the low end has led to declining per

capita VAS usage

Declining prices induced volume growth

Cost of smart phones & features rich handsets continue to

decline, increasing adoption

In the medium term most of the currentchallenges will be addresses by both


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challenges will be addresses by bothoperators and VAS players


Medium Term Growth Driver

Overcoming challenges will rely on shifts in

industry direction caused by regulatory changes

like

Mobile Number Portability

Allocation of 2G spectrum

Introduction of 3G

Non-regulatory changes like

Availability of payment systems other than thetelco

Ad-supported VAS gaining ground, and thusconsumers and VAS companies gain power

Promotion of bundling data plans with voice

Large numbers of users experiencing internet for

first time on mobile devices

And continuation of ongoing trends

Product innovation and ease of use

Device improvements allowing more on the go

Shorter VAS adoption cycles

2006-07 Trends

Subscriber growth at the low end has led to

declining per capita VAS usage

Declining prices induced volume growth Cost of smart phones & features rich handsets

continue to decline, increasing adoption

2008-09 Trends

Continued low ARPU subscriber growth, forming

majority of net adds will ensure growth of

traditional VAS

Operators focus shifts from customer acquisition

to VAS promotion, but very slowly


Primary focus on reinvention of traditional VAS

& early adoption of high end services

2008-09 Trends2008-09 Trends

Continued low ARPU subscriber growth, forming majority of

net adds will ensure growth of traditional VAS

Operators focus shifts from customer acquisition to VAS

promotion, but very slowly


Primary focus on reinvention of traditional VAS & early

adoption of high end services

Continued low ARPU subscriber growth, forming majority of

net adds will ensure growth of traditional VAS

Operators focus shifts from customer acquisition to VAS

promotion, but very slowly


Primary focus on reinvention of traditional VAS & earlyadoption of high end services


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How do the numbers stack up


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2,774.1

1,813.11,250.4

926.3678.6

437.7237.8

6%

8%7%

8%9% 12%

5%

0

1,000

2,000

3,000

4,000

0%

3%

6%

9%

12%

30.0%

3.0%

13.0%

5.0%

9.0%

2.0%

3.0%

35.0%

2007 2010

W-VAS Services Performance Forecast

100% = USD 926.3 mn 100% = USD 2,744 mn

How do the numbers stack up

VAS Revenues Forecast 2007-10

2004 2005 2009E2008E2007E2006 2010ERevenues(USD

mn

)V

ASas%ofTotalRev


CAGR%

SMS (P2P) 26%

SMS (A2P P2A) 20%CRBT / Ringtones 18%

Voice 82%

Games 63%

Data 141%

E-mail 138%

Others 82%

Overall CAGR 44%

19.8%5.9%

7.9%

6.9%

17.8%

8.9%

13.9%

18.8%

2010 and beyond


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2010 and beyond

2010 and Beyond


Share of traditional VAS will decline to less than 50% in 2010from nearly 80% today

Mobile Data / Internet, E-Mail, and IVR based services willachieve the highest growth rates

VAS companies will start seeing the environment favoring them

Operators will heighten focus towards VAS as a requirement tosustain revenue growth and monetize slowing user baseexpansion

Industry will witness much awaited hockey stick growthbeyond 2010


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Contact Details

BDA Team

Kunal BajajDirector - India

[email protected]

Girish Trivedi - Principal ManagerDeepshikha Garg, Rahul GuptaSmita Sharma

India: +91 11 4700 3100China: +86 10 8529 [email protected]

Stanford University Team

Mohit S. GundechaResearch Associate

Stanford Technology Ventures [email protected]@gmail.com

Prof. Tom Kosnik

Consulting ProfessorStanford Technology Ventures [email protected]

Full Report Accesswww.bdaconnect.com/india

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