Needed - A Dash of VAS!

chillibreeze writer — Deepak Kumar

As operators reach out to new subscribers at the bottom of the socioeconomic pyramid, a higher VAS mix will help them maintain good financial health

The telecom revolution that kicked off in the mid-nineties in India has indeed been reaching out to masses that lie at the very bottom of the socioeconomic pyramid.

The global economic crisis, which the country experienced as a slowdown, has in a way accelerated subscriber growth, as operators kept coming up with aggressive launches and tariff plans to boost subscriber growth.

In particular, the year 2009 has witnessed unprecedented competition, bordering on price wars, something that has certainly pulled entry barriers for subscribers to new lows.

Tariffs from Zenith to Nadir
In 2004, the number of mobile operators in most of the telecom circles commonly stood at four. Today, most of the circles already have seven operators per circle, while additional licenses have also been issued.

This increase in competition has largely led to a rapidly swelling subscriber base as well as amazingly low tariffs. In 1995, when the mobile services were first rolled out, at Rs 20 per minute, they were affordable only for the very affluent class.

By 2004, the scenario had changed substantially—a postpaid subscriber would be charged at the rate of around Rs 2 per minute or 1/10th of the rate in 1995. The urban middle class found the services affordable enough.

By mid-2009, at 50 paisa per minute, mobile tariffs came down to one-fourth of what they used to be in 2004, well within the reach of even the humble among the masses. More recently, the one-paisa-per-second spin from Tata DoCoMo has proved to be a raging success, as the operator was able to mop up 1.8 million subscribers in the very first month of launch of the service.

Other operators have been under pressure to offer similar plans, and on October 30, Airtel finally announced its own version of one-paisa plan, in the backdrop of a slowed net growth in the operator’s Q2 results. Vodafone too announced a similar tariff plan.

Volume Hypothesis Alone Isn’t Enough!
An underlying assumption at work has been that lower tariffs would lead to higher minutes of usage and eventually lead to a stable—if not increased—average revenue per user for operators!

That doesn’t seem to be the reality—minutes of usage have not gone much northward.

The result? Operators’ revenue and net growths are expected to slow down, at least in the short run. The ongoing tariff war is making investors wary. The telecom sector, which only a few months ago was being lauded as one that had managed to remain relatively insulated in the wake of economic slowdown, is suddenly being looked at with a good degree of caution. The mood can’t be termed as bullish anymore.

Another assumption in the industry has been that subscriber volumes would continue to surge at existing rates. In this context, it is important to note that the tele-density in the country is already at around 40%, with urban tele-density being as high as 95%, as per Telecom Regulatory Authority of India’s data for the quarter ended June 2009.

Sure, there is still room left for growth and one may reasonably argue that stagnation would not come until tele-density is in the range of 60-65. Yet, for a country like India, where the masses still lie at the bottom of the socioeconomic pyramid, current growth levels in tele-density would be harder and harder to sustain, after 40. So the next hundred million subscribers would not be added in three quarters flat, as the last hundred million subscribers got added.

Let the Value Game Pick up!
Sure, the volume game can keep going on, as it’s good for the masses and the tele-density.

At the same time, a value game must begin, as it is a must for the long-term health of the industry!

Given the free-fall that tariffs for vanilla voice services continue to experience, it is important that operators increase their focus on value-added service (VAS) offerings. As of today, VAS contributes around 10% of operators’ revenues in India, which is quite low compared to China, where the contribution is almost 25%. The share of VAS revenue is much higher in countries like Japan and South Korea.

Clearly, there is a strong growth potential for mobile operators in the VAS revenue space. Realizing that potential will also give them the necessary cushion to work with low tariffs for their vanilla offerings, which have been bringing the bottom-of-the-pyramid subscribers into the mobile services fold.

Chillibreeze's disclaimer: This is a contributed article and was published on Chillibreeze in December, 2009. The views and opinions expressed in this article are those of the author(s) and do not reflect the views of Chillibreeze as a company. Chillibreeze has a strict anti-plagiarism policy. Please contact us to report any copyright issues related to this article. The relevance of the facts and figures cited (if any) could change after a period of time.

More on Chillibreeze.com

Other popular articles on Chillibreeze

Microfinance: Giving Credit to the Entrepreneurial poor
How to work with an offshore team in India
Blogging – A perspective
Jambo Kenya!!
Legalization of Drugs: Pros & Cons

Out of 5 “chilies”, our editorial team gave this article...

—About our writer:

Deepak says, "My dream in life is to live in the countryside and yet do all that I do—research, write and consult, but more importantly, also do what I don't do now—contribute to the society!"

>> Read more articles written by Chillibreeze writers:

More resources for Writers on Chillibreeze.com

Chillibreeze offers Indian writers the opportunity to work on customer projects. We are also India’s biggest writer network and a one-stop shop for Indian writers and editors. The writers’ section on Chillibreeze offers freelance writers and editors a variety of tools to advance their careers. Resources for writers include:

Assessment of your writing, editing and proofreading skills

Writing courses

Expert Feedback on your article

An opportunity to promote yourself on our website

Top websites for Indian writers

Tips and resources for Indian freelancers

Book Publishing services

And more………………..

Explore our writers’ section using the links on our left-hand side menu. IMPORTANT! Don’t forget to