I find myself simultaneously excited by the future prospects of India's mobile value-added services (MVAS) industry and depressed by the current friction in the eco-system. Overall though, I am cautiously optimistic - there is some hope on the horizon in the form of upcoming offdeck rev-share changes, smartphone growth, and the (rumored) Reliance 4G launch.
So, what is the problem?
Mobile operator ARPU in India has collapsed from roughly $10 in 2005 to $3 currently, compared to a steady $11 in China and $70 in the US. There is over-competition in the market - good news for consumers in terms of voice prices but bad news for consumers in terms of slower rollout of broadband and high wireless data prices.
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Wireless data in India is relatively early - it accounts for ~$4.8 billion in revenue (according to IAMAI and Analysys Mason) or 16% of overall wireless revenue of ~$30 billion. MVAS (excluding data plans and p2p SMS) accounts for approximately half of wireless data revenue in India. Contrast this to US data revenue of ~$70 billion in 2011 (approximately 35-40% of overall wireless revenue of $200 billion) and China data revenue of $32 billion (approximately 27% of overall wireless revenue of $120 billion). There are approximately 50 million mobile Internet users in India out of ~800 million mobile users.
MVAS companies in India are not growing fast (or at all). Since they have traditionally focused on building businesses inside the operator walled garden, they have been governed by the 25-30% cap on the rev-share that they get. Recent TRAI regulation changes have not helped the vendors (although I think consumers have benefited from the elimination of spam and seamy billing practices). Due to their whitelabel nature and lack of consumer branding, most MVAS companies are being increasingly commoditized. They also have a high cost base given the rev-share constraint, content licensing costs and the fixed cost of managing operator relationships.
The leading MVAS companies like OnMobile, IMIMobile, Comviva and One97 have now refocused their attention outside India. Beyond that, there is a long-tail of MVAS companies, none of which seem to have truly punched through $5-10M per year in revenue and many of which have now optimized for cash-flow at the expense of growth.
No alternative payments platform in place. Operator billing is the most pervasive payment mechanism in the world, and in India (apart from cash and checks). Some sort of alternative mechanism needs to come along, whether cash load networks or mobile wallets with integration to net banking/ETF/credit cards/cash load networks or operator billing aggregators. 18 million credit cards is a miniscule number relative to 800 million+ mobile users.
But I think there is some hope on the horizon. Here's what to look out for in the next 12-24 months:
1) offdeck rev-shares could be poised to increase dramatically from 30% to developers going up to 70% in the next 12 months, with Vodafone leading the charge (more on this in the next post).
2) over the next 2-3 years, as true smartphones (Android/iOS) grow to ~100 million installed base, from the current 10-15 million, consumers will have access to a global applications database and regular payment options.
3) Reliance 4G may disrupt on pricing and rev-shares to break open the market. This might drive a data plan price war.
simplification in pricing will be a dangerous game. the one who can provide the cheaper service to the consumers (not enterprises) while establishing the balance between unlimited consumer pricing (across various speeds) and the enterprise pricing while keeping their backbone related constraints in mind will most likely win.
Posted by: Anu Anand | May 30, 2012 at 08:43 AM
arpu should be looked at in relation to operator's investments in the network and the operator's ROI while also taking into account the PPP . also, class based statistics need to be used instead of going wholesale . also, the per capital income in this country is so much lower compared to both china and even more so u.s.a.. its grossly wrong to compare it the way it has been done here . also it'll be nice to know the total revenue per dollar invested for the telecom companies from the compared countries.
one of the main reasons behind the lower arpu for voice in india is likely the high level of recent penetration into the extremely-low-income (including students and villages) markets. perhaps even the fact that indians neither collaborate nor socialize as much as the americans do. the savings and waste-reduction culture is probably also partly responsible for it. besides, u.s. people are wild in their spending habits anyway - i'd like to see a comparison with spain, russia, chile, brazil and france - and even south korea while we are at it.
to get an idea of where to set the "PAR-bar" for comparison, anything in india thats being spent upon more than 1/3rd (@PPP) of its u.s. cost (for high tech services) should be considered overpriced. entirely domestically produced items (1/10th of u.s.), investable resources and assets are completely different stories.
Posted by: Anu Anand | May 30, 2012 at 08:33 AM
Good post and fabulous post on medianama.
However, I would'nt bet on 4G services (seems like a bet on 3G). The truth of the matter is the simple services where the loop can be closed dont require serious bandwidth. You nailed the infrastructure issue on your post on medianama.
Agreed, the future does look bright. The real question is how does one survive this winter before the upcoming spring and summer. Raising Capital around mobile ventures is rather painful at this point. Good to see ex-entrepreneurs going to the other side. The Indian ecosystem definitely needs more of ex-entrepreneurs, otherwise we will have to keep explaining the comparison of angry birds to the mba dudes.
Posted by: Arjunram | March 08, 2012 at 02:43 PM
Broadband coverage and prices are high. However, I also think data pricing needs to be simplified.
Posted by: Dkhare | March 03, 2012 at 07:26 PM
Good info. Personally I've seen my mobile bill drop over time:
2005 - Rs. 2000 a month (BlackBerry service)
2007 - Rs. 1000 a month (moved to the iPhone)
2012 - Rs. 500 a month (moved to a 3G plan)
I would say the biggest factor is Reliance Infotel with their 4G rollout. They could effectily crush the competition with their pricing. I read somewhere they wanted to charge Rs. 10 per GB. Currently, I pay Rs. 1 per MB on Vodafone 3G.
Posted by: Mrjain | March 01, 2012 at 09:14 PM