More spectrum means more bandwidth for mobile data. This in turn will lead to new avenues opening up for content companies and application developers
Even as the world marvels at Indian ingenuity that has converted the lowest tariff market in the world into one of its most profitable, the performance of the country’s wireless data market has been quite the opposite. India’s wireless data market has been languishing.
While 20% of wireless revenues in China comes from data, in India these services account for only around 7% of total revenues. Compared to this, operators such as O2, NTT DoCoMo and 3 get more than 30% of their revenues from such services.
The government’s move to allocate fresh spectrum, as much 100 MegaHertz to the existing 35 Mhz, may be just the thing to get this segment kick-started.3G and high-speed data services with this spectrum will be like construction of a new high speed expressways, direct to wireless consumers, where there was only a jungle-trail earlier. This new road will open up opportunities, both for content as well as applications providers to reach out directly to consumers without having to go through, and pay commission to the operator.
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Mobile VAS In India - the reality
Indian value added service industry still revolves around voice and operator-hosted services. According to Gartner, the Indian mobile value added industry was worth around $ 858 million (Rs 3,400 crore) during 2006. Going by the reported revenues of mobile operators so far, this is likely to grow to around Rs 5,850 crore this year - about 9% of the total revenues of Rs 65,000 crore for the wireless sector this year.
While 9% may seem decent, the fact is that most of the growth has come from voice-based services such as caller tunes which are essentially on-deck or operator add-on services. Voice-based services, including all the variations such as caller tunes, dial-a-song and enquiry services, contribute around 22% of the total revenues of the segment.
Another big chunk of the revenues is contributed by another operator-based service - SMS. Such services, including both the normal person-to-person messages as well as the special or value added SMSes sent to short-codes, contribute another 56% of the total VAS revenues in India.
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Thus, around 78% of the VAS revenues is split between voice and SMS services, neither of which can be launched without the permission and co-operation of the operator as they require special infrastructure and special SMS numbers. Today, operators are the only return channel for revenues - customers pay for such such services by being charged at a higher rate for messages and calls. Thanks to this, either such services are launched by operators themselves, or they charge large commissions, sometimes as high as 60-70% of the charges.
Not surprisingly, the prices for voice and SMS based services remain high and demand is constrained. “Our pricing freedom is impacted by (operator) commissions,” says Viren Popli who heads the Mobile Entertainment division of STAR India which has its own short codes and phone lines for audience participation services. The remaining segment - services delivered on the data network - is the only one where a company can hope to directly reach out to the customer.
As data connectivity directly plugs in the mobile user to the internet, the scope for legitimate operator intervention is almost zero – like your broadband provider cannot demand a commission every time you make an online purchase.
However, this segment is still tiny, around Rs 1,300 crore this year - about 2% of the total amount that subscribers pay to the operators. Even within this tiny fraction, about half is comprised of access charges paid by the customers to access the internet or other servers. Thus, the current addressable market for an operator-independent content and applications business is just around Rs 650 crore, or 1% of the total wireless industry.
The Spectrum Bottleneck
Yet there are many who strongly believe in the potential of the sector. Sanjay Sinha is an ex-silicon valley technology professional who came back to India around a year ago, eager to take advantage of the burgeoning mobile users and the untapped data services. Having done some basic market testing in other markets, Sinha launched a mobile streaming service for mobiles called Airchord with an SMS short code for new users to sign up. All you had to do was to send a text message to 3030, download and install a programme by clicking on the reply message and you were all set to listen to hundreds, if not thousands of songs streaming from Airchord servers in India and the US. Sinha wanted to take the model ‘pay’ later by requiring users to pay by credit card on the company’s website. However, he soon stopped advertising the service and after a few months, pulled the plug on the SMS short-code too. For those users who downloaded the programme during the early days, the service is still working. Says Sinha who is planning to relaunch the service, this time, in co-operation with the operators. “The operators have to have better bandwidth management. A lot of bandwidth is now set apart for high priority services like serving corporate clients using wireless email or for delivering the operator’s own content services. This restricts the bandwidth available for open services like independent streaming services”.
Says Popli of Star, which independently launched a service a year ago to let users download and watch minute-long clips of its television content at Rs 30 a month: “Given the present data connectivity, we cannot hope to deliver long clips. You start downloading a long clip and walk a few steps and suddenly it is aborted because the connectivity is gone.”
In a market where subscriber numbers are exploding and operators are going all out to reach new areas before competition, data connectivity has taken a back seat. Apart from clearly lucrative services like the operators’ own downloadable content and enterprise services like push-email which offer assured returns, operators have been reluctant to invest in allocating more spectrum for data connectivity. Given that demand for voice is yet to be met fully, operators are yet to invest heavily into data.
Services such as Airchord’s require a constant bandwidth of between 16 to 40 kbps while most cellular networks manage around 10 to 15 kbps during the day-time in most places. While connectivity improves during off-peak hours, it varies from one area to another. Hence, Sinha’s new streaming service will be invitation only, to make sure that those who sign up get a minimum level of bandwidth and service.
“The market will change only when 3G comes,” says Samrat Majumdar, head of research & product development at mobile applications developer Netxcell. Among Netxcell’s many ‘white label’ products is a streaming video solution, complete with full-length movies that users can watch on the mobile. “When we went to the operators and showed them the demo, they said, ‘it’s fine for one person, but if 20 people start using it in the same cell, our network will get choked,” And the project went back into the bag!
The 3G effect
“More spectrum, especially for data services like 3G, will have a far reaching impact on the industry,” says N V Subba Rao, president and CEO of solutions developer Tanlamobile. Rao sees the focus on voice slowly disappearing as competition erodes the relatively fat margins, forcing operators to invest in data and related services. “When more and more operators come into the market, the voice market will become increasingly commoditized as tariffs fall further. Operators will have to think of other ways to differentiate themselves; there is only so much you can do to value-add when you are just connecting one person with another using a voice link,” he says. “More and more, for voice, the operator will become a dumb pipe.”
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