Executive Summary Presentation

Future of Mobile VAS in India
Executive Summary December 2007
Mohit S. Gundecha
Research Associate Stanford University
Fenwick & West Consulting Professor STVP, Stanford University
Prof. Tom Kosnik
Director India BDA
Kunal Bajaj
2007 Stanford University & BDA
BDA Team:
Girish Trivedi Principal Manager Deepshikha Garg Rahul Gupta Smita Sharma
Our special thanks to:

Eric Allen Wireless Advisor Veerchand Bothra Author, MobilePundit Nitin Brahmankar Director, IDT
The team followed the below process in a very limited timeline, yet was able to gather extensive primary information from industry leaders
Primary Data: Interviewed 23 leading Primary Data: Interviewed 23 leading VAS companies, each of the major telecom VAS companies, each of the major telecom operators and other industry experts operators and other industry experts
Research Research Design Design
Stanford & BDA Team Stanford & BDA Team Synthesis & Analysis Synthesis & Analysis
Why Mobile? Why Mobile? Why India? Why India? Why Now? Why Now?
Secondary Data: BDA Secondary Data: BDA Database & Reports Database & Reports
Mobile Mobile Momentum Momentum
Sept 15
Sept 30
Oct 15
Oct 30
Nov 15
Nov 30 3
Leading VAS players in India profiled during project
Table of Contents Indian Telecom Overview Introduction to VAS in India

VAS Value Chain Key Challenges & Hurdles Today
VAS Outlook for India

Addressing Challenges & Hurdles Assessment of Applications & Services
Projections
Indian telecom overview

Operator Market Share (Oct 2007)
Population Fixed Subs Mobile Subs Internet Subs Broadband Subs
1.112 billion 39.41 million (Oct 2007) 217.14 million (Oct 2007) 9.22 million (Jun 2007) 2.67 million (Sept 2007)
Idea 9.0% Tata Teleservices 9.3%
Others 7.7%
Airtel 23.4%
BSNL 16.1% Vodafone 17.1%
Reliance 17.4%
Interesting Market Facts
Despite the continued record growth over the last 12 months, only 23.07% of the countrys 1.1 bn population owns a telephone, which points to a situation where growth is expected to continue and even accelerate The Big 4 continue to lead in market share, but BSNL is losing ground to the other 3 quickly
Source: TRAI, COAI, AUSPI, BDA Analysis Note: Mobile subs data includes fixed wireless customers
Market continues to show a trend of over 7 million net subscriber additions in a month
Launch of INR 777 Handsets / Lifetime Prepaid Below INR 500 Record Additions in a month
Launch of 999 scheme
9 8 7 6
Million
ai rep oP cr Mi s ke Ta d off
ne Pe t io ra t nB ni &C s cle Cir
6.7 5.9 6.1
6.8
6.5
6.8
Verification of subscribers
8.1 6.6 7.0
8.3
7.8
8.0
6.2
6.1
5 4 3 2 1 0
4.4
5.0
5.4 4.5 3.9
5.3 4.8
4.3
3.5 2.5 2.9
2.6
Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct05 05 05 05 06 06 06 06 06 06 06 06 06 06 06 06 07 07 07 07 07 07 07 07 07 07
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 expand coverage to rural areas, the trend of new subscribers additions will continue
Source: TRAI, Morgan Stanley Research, Telecom Watch, BDA Analysis
Rules of the game
Declining Tariff Improved Regulatory Structure
Innovative Pre-Paid Tariff Plans
Wireless Subs (mn)
500 400 300 200 100 0 2003 2004 2005 2006 2007F 2008F 2009F 2010F
Declining Handset Prices
Unprecedented Growth
Source: BDA Analysis
Over the recent years, most new subscribers being acquired have been low-end users, resulting in falling ARPU
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
1,500 Subscriber Base (mn) ARPU (INR/Month) 200
Subscriber (mn)
ARPU (INR)
1,000
150 100
500
50 0 2000 2001 2002 2003 2004 2005 2006
Source: Company Information, TRAI, BDA Interview and Analysis
Operators and handset vendors must adapt their strategies to serve the Bottom of the Pyramid
Growth is fastest at the Bottom of the Pyramid
Growth is continuing in Growth is continuing in metros and urban metros and urban
Growth is taking off in semiGrowth is taking off in semiurban and rural areas urban and rural areas
USO will help continue to USO will help continue to drive coverage gains drive coverage gains
Operators and vendors must adapt their Operators and vendors must adapt their strategies and distribution to meet this new growth strategies and distribution to meet this new growth
10


Projections
11
Indias VAS market estimates show aggressive growth and decreasing relative importance of textbased offerings
VAS Performance 2005
0.6% 1.5% 3.6% 13.2% 9.6% 35.0% 70.0% 15.0% 0.5% 1.0%
Data and Voice Breakup

2% 4% 5% 5% 5% 6% 8% 7%
2006
1.0% 0.5% 3.0% 5.0% 0.5%
40.0%
SMS (P2P) SMS (A2P P2A) CRBT / Ringtones Voice Games Data E-mail Others
98%
96%
95%
95%
95%
94%
92%
93%
2000
2001
2002
2003
2004
2005
2006
2007 F
100% = USD 438 mn
USD 678 mn
Voice
VAS
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
Source: COAI, IAMAI, BDA Analysis
12
VAS today comprises of primarily SMS and content focuses on Bollywood & Cricket
SMS has been recently driven by voting based TV shows. Indian Idol alone received more than 5,400 SMSs per minute during the last 9 voting days SMS has been reinvented and adopted for mobile data services used by enterprises as well Bollywood is the killer content and is being used for ring tones, CRBT, games and wallpapers It is followed by cricket, around which most of the rest of content is built and marketed Niche applications like IVR have just started to emerge and have been successfully used in some of TV shows, as well, for auditioning participants Rural application initiatives have started primarily in pilots, but with innovative services like commodity pricing, their utility is potentially very high in less developed geographies
13
SMS SMS
Bollywood/ Bollywood/ Cricket Cricket
IVR IVR
Rural VAS Rural VAS


Projections
14
The VAS value chain consists of six entities primarily involved in the flow
Content / Application Owner
Software Developer
Technology Enabler Aggregator Telco Internet Pipeline
Handset Vendor
SI/NI
Content Flow Process Flow Source: BDA Interview and Analysis, Industry Feedback
Consumer
15
Network operators dominate the revenue sharing arrangement in VAS today
End User End User
End user pays for the content
Network Operator Network Operator
Operator keeps 60 - 70% of revenue
Aggregator Aggregator
Aggregators get approx 20 - 25 % of revenue
Content / Content / Application Owner Application Owner
Content / Application owners get 10 - 15% of total revenue
Overall revenue share split of 70:30 between operators and VAS players applies for both GSM and CDMA operators
Source: BDA Interview and Analysis, Industry Feedback
16


Projections
17
VAS challenges
Operator Challenge Operator Challenge User Challenge User Challenge
Operators focusing on Operators focusing on subscriber acquisition with no subscriber acquisition with no incentives to push VAS in light incentives to push VAS in light of current spectrum allocation of current spectrum allocation criteria criteria Spectrum constraints and delay Spectrum constraints and delay in 3G roll-out has substantially in 3G roll-out has substantially limited high-end VAS take-off limited high-end VAS take-off
Content Localization Challenge Content Localization Challenge
Operators not driving user Operators not driving user awareness to promote various VAS awareness to promote various VAS offerings offerings Ease of use, user interface and Ease of use, user interface and familiarity with medium of access familiarity with medium of access such as GPRS, IVR etc are some of such as GPRS, IVR etc are some of the challenges for the end user the challenges for the end user
Operators havent done much Operators havent done much to customize content according to customize content according to consumer behaviour to consumer behaviour Limited availability of local web Limited availability of local web content and WAP versions of content and WAP versions of whatever is available whatever is available
Value Added Services
Revenue Challenge Revenue Challenge
Ongoing tussle between operators Ongoing tussle between operators and VAS companies for revenue and VAS companies for revenue share continues share continues Since alternative models haven't Since alternative models haven't evolved yet, this has hampered VAS evolved yet, this has hampered VAS innovation innovation
Device Challenge Device Challenge
Providing feature-rich handsets at Providing feature-rich handsets at low cost is a big challenge with GPRS low cost is a big challenge with GPRS enabled handsets still around INR enabled handsets still around INR 2,599 (USD 63) 2,599 (USD 63) Pre-loading of applications by Pre-loading of applications by handset OEMs has not really caught handset OEMs has not really caught on yet on yet
18
VAS challenges
Ongoing tussle between operators and VAS companies for Ongoing tussle between operators and VAS companies for
revenue share continues revenue share continues VAS innovation VAS innovation
Value Since alternative models haven't evolved yet, this hasRevenue Challenge hampered Since alternative models haven't evolved yet, this hasRevenue Challenge hampered Added Services
Mobile advertising model is in nascent stage as agencies are yet Mobile advertising model is in nascent stage as agencies are yet to adopt this new channel and gain familiarity to adopt this new channel and gain familiarity
Ongoing tussle between operators Ongoing tussle between operators and VAS companies for revenue and VAS companies for revenue share continues share continues Since alternative models haven't Since alternative models haven't evolved yet, this has hampered VAS evolved yet, this has hampered VAS innovation innovation
19
VAS challenges
Operators not driving user awareness to promote various Operators not driving user awareness to promote various
User Challenge User Challenge
VAS offerings VAS offerings
to customize content according to customize content according to consumer behaviour to consumer behaviour Limited availability of local web Limited availability of local web content and WAP versions of content and WAP versions of whatever is available whatever is available
Value Revenue Challenge Revenue Challenge Ease of use, user interface and familiarity with medium of Ease of use, user interface and familiarity with medium of Added Operators havent done much Ongoing tussle between operators Operators havent done much Ongoing tussle between Services access such as GPRS, IVR etc are some ofthe challenges operators
access such as GPRS, IVR etc are some of theVAS companies for revenue and VAS companies for revenue and challenges share continues share continues for the end user for the end user Since alternative models haven't Since alternative models haven't
evolved yet, this has hampered VAS evolved yet, this has hampered VAS innovation innovation
20
VAS challenges
Operators havent done much to customize content Operators havent done much to customize content
according to consumer behavior according to consumer behavior of whatever is available
to customize content according to customize content according to consumer behaviour to consumer behaviour Limited availability of local web Limited availability of local web content and WAP versions of content and WAP versions of whatever is available whatever is available
Value Revenue Challenge Revenue Challenge Limited availability of local web content and WAP versions Limited availability of local web content and WAP versions Added Operators havent done much Ongoing tussle between operators Operators havent done much Ongoing tussle between operators of whatever is available Services
and VAS companies for revenue and VAS companies for revenue share continues share continues Since alternative models haven't Since alternative models haven't evolved yet, this has hampered VAS evolved yet, this has hampered VAS innovation innovation
21
VAS challenges
Operators focusing on subscriber acquisition with no Operators focusing on subscriber acquisition with no
Operator Challenge Operator Challenge
incentives to push VAS in light of current spectrum incentives to push VAS in light of current spectrum allocation criteria allocation criteria Value
Added Services and delay
Ongoing tussle between operators Ongoing operators Spectrum constraints and delay in 3G roll-out hastusslebetweenrevenue Spectrum constraints in 3G roll-out VAS companies for revenue and has and VAS companies for
substantially limited high-end VAS take-off substantially limited high-end VAS take-off
share continues share continues Since alternative models haven't Since alternative models haven't evolved yet, this has hampered VAS evolved yet, this has hampered VAS innovation innovation
22
VAS challenges
Providing feature-rich handsets at low cost is a big Providing feature-rich handsets at low cost is a big
challenge with GPRS enabled handsets still costing around challenge with GPRS enabled handsets still costing around INR 2,599 (USD 63) INR 2,599 (USD 63) Value
Added Services applications by handset
Ongoing tussle between operators Ongoing operators Pre-loading of applications by handset OEMsandVAS tussle betweenrevenue Pre-loading of OEMs has companies for revenue has not really not really and VAS companies for
caught on yet caught on yet
share continues share continues Since alternative models haven't Since alternative models haven't evolved yet, this has hampered VAS evolved yet, this has hampered VAS innovation innovation
Providing feature-rich handsets at Providing feature-rich handsets at low cost is a big challenge with GPRS low cost is a big challenge with GPRS enabled handsets still costing around enabled handsets still costing around INR 2,599 (USD 63) INR 2,599 (USD 63) Pre-loading of applications by Pre-loading of applications by handset OEMs has not really caught handset OEMs has not really caught on yet on yet
23


Projections
24
VAS challenges moving on

Regulatory uncertainty Regulatory uncertainty around spectrum is going around spectrum is going to continue to hinder to continue to hinder promotion of VAS promotion of VAS With 3G, operators will With 3G, operators will increase their focus on increase their focus on mobile internet VAS for mobile internet VAS for high end users high end users
Traditional VAS SMS, CRBT and Traditional VAS SMS, CRBT and ringtones will continue to grow with ringtones will continue to grow with increased awareness increased awareness Awareness will remain a problem for Awareness will remain a problem for advanced VAS services unless advanced VAS services unless marketing is done by VAS companies marketing is done by VAS companies themselves to educate users themselves to educate users
IVR will be a solution to local IVR will be a solution to local language support language support Creating the locally relevant Creating the locally relevant content will still require content will still require substantial investments substantial investments
Value Added Services
Advertisements will be a new revenue Advertisements will be a new revenue avenue for VAS players and could avenue for VAS players and could offer them the independence they offer them the independence they need to succeed need to succeed Mobile advertising will benefit Mobile advertising will benefit operators, advertisers, VAS players operators, advertisers, VAS players and consumers and consumers
Challenge will be overcome Challenge may be overcome or could continue to exist Challenge will continue to exist Source: BDA Analysis
Devices are no more a challenge Devices are no more a challenge with more features getting added at with more features getting added at lower price points lower price points VAS players and handset vendors VAS players and handset vendors are forming partnerships to embed are forming partnerships to embed applications applications
25

Advertisements will be a new revenue avenue for VAS Advertisements will be a new revenue avenue for VAS
players and could offer them the independence they need players and could offer them the independence they need to succeed to succeed Value
Added Services benefit operators,
Advertisements will be new revenue Advertisements VAS new revenue Mobile advertising will benefit operators, advertisers, will be aaandcould Mobile advertising will advertisers,players and could avenue for VAS players avenue for VAS VAS
players and consumers players and consumers
offer them the independence they offer them the independence they need to succeed need to succeed Mobile advertising will benefit Mobile advertising will benefit operators, advertisers, VAS players operators, advertisers, VAS players and consumers and consumers
26

Traditional VAS SMS, CRBT and ringtones will continue to Traditional VAS SMS, CRBT and ringtones will continue to
grow with increased awareness grow with increased awareness

Value
User Challenge User Challenge
Content Localization Challenge Revenue ContentLocalization Challenge remain a problem for advanced VAS Challenge Revenue Awareness will remain a problem for advanced VAS Challenge Awareness will Added
Advertisements will be new revenue Advertisements new revenue services unless marketingServices by VAS companies will be aaandcould services unless marketing is done by VAS companiesplayers and could is done avenue for VAS players avenue for VAS offer them the independence they offer them the independence they themselves to educate users themselves to educate users need to succeed need to succeed Mobile advertising will benefit Mobile advertising will benefit operators, advertisers, VAS players operators, advertisers, VAS players and consumers and consumers
27

More content will be created for Bollywood and cricket as More content will be created for Bollywood and cricket as
they are tried & tested they are tried & tested
Content LocalizationChallenge ContentLocalizationbe a solution to local language support IVR will be a solution to local language support IVR will Challenge Added
Value
Services
Creating the locally relevant content will still require Creating the locally relevant content will still require
substantial investments substantial investments
28

Regulatory uncertainty around spectrum is going to continue to Regulatory uncertainty around spectrum is going to continue to
hinder promotion of VAS hinder promotion of VAS
Operator Challenge Operator Challenge
Value In Localizationwith the introduction of 3G, high end 2G users can Challenge be In India, with the introduction of 3G, high end 2G users can Challenge India, Challenge Content LocalizationChallenge Revenue be Content Revenue

content will still require content will still require substantial investments substantial investments
immediately migrated for delivering better service experiencebeand revenue immediately migrated for delivering better service experiencebeaanew revenue IVR will be a solution to local Advertisements will and IVR will be a solution to local Advertisements will new Services language support avenue for VAS players and could language supportcapacity avenue for VAS players and could freeing capacity freeing Creating the locally relevant offer them the independence they Creating the locally relevant offer them the independence they
With 3G operators will increase their focus on mobile internet VAS With 3G operators will increase their focus on mobile internet VAS
Added
for high end users for high end users
need to succeed need to succeed Mobile advertising will benefit Mobile advertising will benefit operators, advertisers, VAS players operators, advertisers, VAS players and consumers and consumers
29

Devices are no more a challenge with more features getting Devices are no more a challenge with more features getting
added at lower price points added at lower price points
Value VAS players and handset vendors are forming partnerships to VAS players and Content Localization Challenge handset vendors are forming partnerships to Revenue Challenge Content Localization Challenge Revenue Challenge
language support language support Creating the locally relevant Creating the locally relevant contentwill still require content will still require substantial investments substantial investments
embed applications embed applications IVR will be a solution to local IVR will be a solution to local
Added Services
GSM players have started adopting aggressive handset bundling GSM players have started adopting aggressive handset bundling thus reducing GSM cost of ownership, as well thus reducing GSM cost of ownership, as well
30


Projections
31
Industry sentiment gives a clear indication where the revenues are likely to come from
Application For Against Industry Feedback
SMS SMS
Enhanced messaging experience for users Contextual targeting of users Micro payment for merchants on 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 gaining popularity in India Easy learning curve, regional language content Capable of replicating info service from SMS or WAP
Source: BDA Interviews and Analysis, Industry Feedback
Convince advertisers about SMS ads Contextual advertising could be intrusive in nature As a cash & cheque country, will take time for mass market to adopt mCommerce Pricing and network quality / speeds critical for the success Bandwidth hampers content sharing Handsets deliver poor user experience in viewing size & browser Not affordable for the masses, due to premium charging on per min basis Lack of refined digitized local language content
32
Mobile Mobile Commerce Commerce
Mobile Mobile Music Music
UGC/SNC UGC/SNC
IVR IVR
Industry sentiment about internet apps being ported to mobile are mixed, especially given low data enabled handset penetration
Application For Against Industry Feedback
IM IM
Access IM on the move & replicate internet experience
Premium charging for messages Text entry, especially for local language Handset cost & overall investment in initial implementation is high deterrent Lack of digitized locally relevant content (e.g. listings, maps) in India
E-mail E-mail
Across business segments will see increasing adoption of e-mail on the move Access to quick, actionable information on the move
Search Search
LBS LBS
Useful for warehousing, field Low level of business computerization force resource tracking and fleet Lack of detailed mapping content management for businesses User demand not significant
Source: BDA Interviews and Analysis, Industry Feedback
33


Projections
34
In the medium term most of the current challenges will be addresses by both operators and VAS players
2006-07 Trends Medium Term Growth Driver
Subscriber growth at the low end has led to declining per capita VAS usage Declining prices induced volume growth
2006-07 Trends 2006-07 Trends
Cost smart phones & features rich handsets of Subscriber growth at the low continue capita VAS usage to decline, increasing adoption capita VAS usage
Mobile to declining Subscriber growth at the low end has ledNumber Portability per end has led to declining per Allocation of 2G spectrum Introduction of 3G
Overcoming challenges will rely on shifts in industry direction caused by regulatory changes like
Declining prices induced volume growth Declining prices induced volume growth Availability of payment systems other than the
Continued low ARPU subscriber growth, forming decline, increasing adoption decline, increasing adoption 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
Cost of smart phones & features richAd-supported VAScontinue toand thus handsets continue to Cost of smart phones & features richconsumers and VAS companies gain power handsets gaining ground, Promotion of bundling data plans with voice Large numbers of users experiencing internet for first time on mobile devices
2008-09 Trends
Non-regulatory changes like

telco
And continuation of ongoing trends

Product innovation and ease of use Device improvements allowing more on the go Shorter VAS adoption cycles
35
2008-09 Trends 2008-09 Trends
Cost smart phones & features rich handsets of Continued low ARPU subscriber growth, forming majority Allocation of 2G spectrum continue net adds will ensure growth of traditional VAS to decline, increasing adoption net adds will ensure growth of traditional VAS
Introduction of 3G
Mobile Number Portability Continued low ARPU subscriber growth, forming majority of of
Operators focus shifts from customerAvailability of payment systems other than the Operators focus shifts from customer acquisition to VAS acquisition to VAS

telco
promotion,Trends very slowly promotion, but very slowly 2008-09 but
Continued low ARPU subscriber growth, forming Device challenge will start to decline Device challenge will of majority of net adds will ensure growth start to declinePromotion of bundling data plans with voice Large numbers of users experiencing internet for traditional VAS first time Primary focus on reinvention of traditional on mobile devices Operators focus shifts from customer acquisition of traditional VAS & early Primary focus on reinvention VAS & early And continuation of ongoing trends to VAS promotion, butof high end services adoption of high end services adoption very slowly Product innovation and ease of use Device challenge will start to decline Device improvements allowing more on the go Primary focus on reinvention of traditional VAS Shorter VAS adoption cycles & early adoption of high end services
Ad-supported VAS gaining ground, and thus consumers and VAS companies gain power
36
Medium Term Growth Driver Medium Term Growth Driver

Introduction of 3G
Cost of smart phoneschanges like handsets & features rich regulatory changes like regulatory continue to decline, Number Portability increasing adoption Mobile
Mobile Number Portability Allocation of 2G spectrum Allocation of 2G spectrum Introduction of 3G Introduction of 3G
Overcoming challenges will rely on shifts in industry direction caused by Overcoming challenges will rely on shifts in industryNumber Portability Mobile direction caused by
Allocation of 2G spectrum
Availability of payment systems other than the telco 2008-09 Trends Availability of payment systems other than the telco Ad-supported VAS gaining ground, and thus Availability of payment systems other than the telco Ad-supported VAS gaining ground, and thus consumers and VAS companiescompanies and VAS and VAS gain power Continued Ad-supported VAS gaining ground, and thus consumersconsumerscompanies gain powergain power low ARPU subscriber growth, forming Promotion of bundling data plans with voice Promotion of bundling data plans with voice Promotion of bundling data plans majority ofnet adds will ensure growth of with voice
Non-regulatory changes like Non-regulatory changes like
Large mobile of users Large numbers of users experiencing internet for first time on mobile devices traditional Large numbers of users experiencing internet for first time onnumbersdevices experiencing internet for VAS first time on mobile devices And continuation of ongoing trends Operators focus shifts from customer acquisition And continuation of ongoing trends And continuation of ongoing trends Product innovation and ease of use to VAS promotion, but very slowly ease of use Product innovation and Device improvements allowing more on the go Product innovation and ease of use Device challenge willimprovements allowing more on the go Device start to decline Device improvements allowing more on the go Shorter VAS adoption cycles Primary focus Shorter VAS adoptiontraditional VAS on reinvention of cycles Shorter VAS adoption cycles & early adoption of high end services
37
How do the numbers stack up

W-VAS Services Performance Forecast
2007
2.0% 3.0% 3.0% 5.0% 9.0% 30.0%
CAGR% SMS (P2P) SMS (A2P P2A) CRBT / Ringtones Voice Games Data E-mail Others Overall CAGR 26% 20% 18% 82% 63% 141% 138% 82% 44%
2010
5.9% 8.9% 13.9% 6.9% 17.8%
100%= USD 2,744 mn
19.8%
7.9%
35.0%
13.0%
18.8%
100%= USD 926.3 mn
VAS Revenues Forecast 2007-10

Revenues (USD mn)
4,000 3,000 2,000 5% 1,000 0

237.8 6% 678.6 8% 7% 926.3 8% 1,250.4 9% 1,813.1
VAS as % of Total Rev
12% 2,774.1
12% 9% 6% 3%
437.7
2004
2005
2006
2007E
2008E
2009E
2010E
0%
38
2010 and beyond
2010 and Beyond

Share of traditional VAS will decline to less than 50% in 2010 from nearly 80% today Mobile Data / Internet, E-Mail, and IVR based services will achieve the highest growth rates VAS companies will start seeing the environment favoring them Operators will heighten focus towards VAS as a requirement to sustain revenue growth and monetize slowing user base expansion Industry will witness much awaited hockey stick growth beyond 2010
39
Contact Details
Stanford University Team Mohit S. Gundecha Research Associate Stanford Technology Ventures Program mohitsg@stanford.edu mohitgundecha@gmail.com Prof. Tom Kosnik Consulting Professor Stanford Technology Ventures Program kosnik@stanford.edu
Full Report Access www.bdaconnect.com/india BDA Team Kunal Bajaj Director - India kunal.bajaj@bdaconnect.com Girish Trivedi - Principal Manager Deepshikha Garg, Rahul Gupta Smita Sharma India: +91 11 4700 3100 China: +86 10 8529 6164 contactus@bdaconnect.com www.bdaconnect.com

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Future of Mobile VAS in India

Executive Summary December 2007

Fenwick & West Consulting Professor STVP, Stanford University

Prof. Tom Kosnik

Director India BDA

2007 Stanford University & BDA

Our special thanks to:

2007 Stanford University & BDA

Research Research Design Design

Mobile Mobile Momentum Momentum

Leading VAS players in India profiled during project

Table of Contents Indian Telecom Overview Introduction to VAS in India

VAS Outlook for India

Indian telecom overview

BSNL 16.1% Vodafone 17.1%

Interesting Market Facts

Launch of 999 scheme

6.7 5.9 6.1

8.1 6.6 7.0

5.4 4.5 3.9

3.5 2.5 2.9

Rules of the game

Declining Tariff Improved Regulatory Structure

Innovative Pre-Paid Tariff Plans

Wireless Subs (mn)

Declining Handset Prices

Source: BDA Analysis

50 0 2000 2001 2002 2003 2004 2005 2006

Source: Company Information, TRAI, BDA Interview and Analysis

Growth is fastest at the Bottom of the Pyramid

Table of Contents Indian Telecom Overview Introduction to VAS in India

VAS Outlook for India

Data and Voice Breakup

100% = USD 438 mn

Bollywood/ Bollywood/ Cricket Cricket

Rural VAS Rural VAS

Source: BDA Analysis

Table of Contents Indian Telecom Overview Introduction to VAS in India

VAS Outlook for India

Content / Application Owner

Technology Enabler Aggregator Telco Internet Pipeline

Network operators dominate the revenue sharing arrangement in VAS today

End User End User

End user pays for the content

Network Operator Network Operator

Operator keeps 60 - 70% of revenue

Aggregators get approx 20 - 25 % of revenue

Content / Content / Application Owner Application Owner

Content / Application owners get 10 - 15% of total revenue

Table of Contents Indian Telecom Overview Introduction to VAS in India

VAS Outlook for India

Value Added Services

Revenue Challenge Revenue Challenge

Device Challenge Device Challenge

Revenue Challenge Revenue Challenge

Content Localization Challenge Content Localization Challenge

User Challenge User Challenge

VAS offerings VAS offerings

Content Localization Challenge Content Localization Challenge

Content Localization Challenge Content Localization Challenge

according to consumer behavior according to consumer behavior of whatever is available

Content Localization Challenge Content Localization Challenge

Device Challenge Device Challenge