Why is VAS necessary in India?


 Hi. Like your mobile phone? Can’t live without it? Do you feel it’s the most personalizable accessory you own? Congratulations – you are not alone! Millions of fellow Indians feel the way you do.

However,  ‘the times, they are a changin’ – today you use the phone quite differently from the way you did in the mid ’90s when due to very high tariffs (remember Rs. 14 per minute?) you made the occassional quick call, and hurriedly switched it off.  In those days, the cell phone was an object of desire, but not of much utility. Consequently, the top two applications then were – SMS and voice – in that order.

Cut to today and the picture is quite different. Let’s see some major trends:

1. Today the market is growing at a furious pace and India is the 5th market to cross the 100 million subscriber mark. That’s a heck of a lot of people connecting with each other! The adoption of mobile telephony remains unparalled in scale, as people from all walks of live choose to connect with each other.


The user base crossed the 100 million mark in Nov 2006 to reach 121 million in March 2007 (Source: Cellular Operators Association Of India). The success of the market can be gauged from the fact that the mobile user base has surpassed the PC user base in India and hopefully soon the Indian market will have more mobile users than TV viewers!

2. An small but emerging segment of customers want more from their cellphone. They use their cellular phones to take snaps, play games, read news headlines, surf the Internet, and listen to music.

3. From the cellular operator’s perspective – voice has become commoditised, average revenue per user has been heading southward and there is considerable pressure to explore alternative revenue avenues like data, which today contributes 10 – 15% of some cellular operators revenue (Source: IAMAI)

From a high of 44 cellular service providers (regulation required a minimum of 2 in each circle in the mid 90’s), to a current 4 – 5 national level players, there has been a lot of consolidation and intensified competition.

The growing intensity of competition has led to more services for the end user at lower prices. This has had an effect of stimulating demand and thus increasing the category adoption rate.

The growing subscriber base has also augured well for industry revenues, which have risen consistently over the last four quarters. However the other side to this growth is that ARPU’s (Average Revenue per User) have been correspondingly declining quarter on quarter. This is also a function of the structure of the Indian mobility market. At 80%, the pre-paid segment completely dominates this Indian mobility market.

4. Pre-paid v/s Post paid

Pre-paid has been a good platform on which the market had grown very fast. Operators have had a strong focus on the pre-paid segment as the cost of customer acquisition is very low compared to the post-paid segment.

However the flip side is that, customer retention has become very difficult. Loyalties in the prepaid segment are low due to the low switching costs and it is not uncommon for user to routinely change their numbers and service providers. Pre-paid subscribes are also low usage subscribers who contribute only 25-30% ARPU’s as compared to the post-paid segment. 

To my mind, cellular service providers in India face two clear challenges:

(i) Regulate churn, esp. in the pre-paid market.

(ii) To develop alternative revenue streams as voice has become commoditized

It is my submission that Value Added Services will be necessary if not vital for telcos to create brand differentiation, and address the challenges mentioned above.


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