1. Future of Mobile VAS
in
India
January 2008
Mohit S. Gundecha Prof. Tom Kosnik Kunal Bajaj
Research Associate Fenwick & West Consulting Professor Director – India
Stanford University STVP, Stanford University BDA
© 2008 Stanford University & BDA

2. 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
© 2008 Stanford University & BDA

3. 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
3

4. Indian telecom overview
Operator Market Share (Nov 2007)
Population 1.112 billion Others
Idea 7.7% Airtel
9.0% 23.5%
Fixed Subs 39.31 million (Nov 2007)
Tata
Teleservices
Mobile Subs 225.46 million (Nov 2007) 9.3%
Internet Subs 9.22 million (Jun 2007) Reliance
BSNL 17.5%
15.9%
Broadband Subs 2.87 million (Nov 2007)
Vodafone
17.1%
Interesting Market Facts
• Despite the continued record growth over the last 12 months, only 23.64% of the country’s 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 4

5. Market continues to show a trend of 8
million net subscriber additions in a month
Launch of INR 777 handsets / Record additions in a month
Lifetime prepaid below INR 500
9 Launch of 999 scheme
8.3 8.4
8.1 8.0
Verification of 7.8
8 subscribers
s 7.0
cle 6.8
7 CC
ir 6.7 6.8 6.6
& 6.5
ff B 6.2 6.1
so io n
in 5.9 6.1
6 ke ra t
ta 5.4 t 5.3
aid ne
p Pe
re 5.0 4.8
Million
5 cr op 4.4 4.5
Mi 4.3
3.9
4 3.5
2.9 2.6
3 2.5
2
1
0
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- Oct- Nov-
05 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 07
• Net new additions in November are the highest up to now, averaging over 8 mn for the
past 5 months
• With aggressive rollout targets by operators such as Bharti and BSNL who plan to expand
coverage to rural areas, the trend of new subs additions will continue
Source: TRAI, Morgan Stanley Research, Telecom Watch, BDA Analysis 5

6. Rules of the game
Declining Tariff
Improved
Regulatory Structure
Innovative Pre-Paid Tariff Plans
500
Wireless Subs (mn)
400
300
200
100
0
2003
2004
2005
2006
2007F
2008F
2009F
2010F
Declining Handset Prices
Unprecedented Growth
Source: BDA Analysis 6

7. 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
1,500 200
Subscriber Base (mn) ARPU (INR/Month)
Subscriber (mn)
150
ARPU (INR)
1,000
100
500
50
0 0
2000 2001 2002 2003 2004 2005 2006
Source: Company Information, TRAI, BDA Interview and Analysis 7

8. 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 Growth is taking off in semi-
Growth is taking off in semi- USO will help continue to
USO will help continue to
metros and urban
metros and urban urban and rural areas
urban and rural areas 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
Source: BDA Analysis 8

9. 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
9

10. India’s VAS market estimates show
aggressive growth and decreasing relative
importance of text-based offerings
VAS Performance Data and Voice Breakup
2005 2006 2% 4% 5% 5% 5% 6% 8% 7%
0.6% 0.5% 1.0% 0.5% 0.5% SMS (P2P)
1.5% 1.0%
3.0% SMS (A2P P2A)
3.6%
CRBT /
13.2% 5.0% 40.0% 98% 96%
Ringtones 95% 95% 95% 94% 92% 93%
9.6% Voice
35.0% Games
70.0% Data
15.0% E-mail
2000 2001 2002 2003 2004 2005 2006 2007 F
Others
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 10

11. 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
SMS
SMS 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
Bollywood/
Bollywood/
tones, CRBT, games and wallpapers
Cricket
Cricket • 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
IVR
IVR well, for auditioning participants
• Rural application initiatives have started primarily in pilots,
but with innovative services like commodity pricing, their
Rural VAS
Rural VAS utility is potentially very high in less developed
geographies
Source: BDA Analysis 11

12. 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
12

13. The VAS value chain consists of six
entities primarily involved in the flow
Software
Developer
Content /
Application Owner
Technology Handset
Enabler Vendor
Aggregator
Telco
Internet Pipeline
SI/NI
Content Flow
Process Flow Consumer
Source: BDA Interview and Analysis, Industry Feedback 13

14. Network operators dominate the revenue
sharing arrangement in VAS today
End user pays
End User
End User for the content
Operator keeps
Network Operator
Network Operator 60 - 70% of revenue
Aggregators get approx
Aggregator
Aggregator 20 - 25 % of revenue
Content / Application
Content /
Content / owners get 10 - 15%
Application Owner
Application Owner 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 14

15. 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
15

16. VAS challenges …
Operator Challenge
Operator Challenge User Challenge
User Challenge
•• Operators focusing on
Operators focusing on •• Operators not driving user
Operators not driving user
subscriber acquisition with no
subscriber acquisition with no awareness to promote various VAS
awareness to promote various VAS
incentives to push VAS in light
incentives to push VAS in light offerings
offerings
of current spectrum allocation
of current spectrum allocation •• Ease of use, user interface and
Ease of use, user interface and
criteria
criteria familiarity with medium of access
familiarity with medium of access
•• Spectrum constraints and delay
Spectrum constraints and delay such as GPRS, IVR etc are some of
such as GPRS, IVR etc are some of
in 3G roll-out has substantially
in 3G roll-out has substantially the challenges for the end user
the challenges for the end user
limited high-end VAS take-off
limited high-end VAS take-off
Value
Content Localization Challenge
Content Localization Challenge Revenue Challenge
Added Revenue Challenge
•• Operators haven’t done much
Operators haven’t done much Services •• Ongoing tussle between operators
Ongoing tussle between operators
to customize content according
to customize content according and VAS companies for revenue
and VAS companies for revenue
to consumer behaviour
to consumer behaviour share continues
share continues
•• Limited availability of local web
Limited availability of local web •• Since alternative models haven't
Since alternative models haven't
content and WAP versions of
content and WAP versions of evolved yet, this has hampered VAS
evolved yet, this has hampered VAS
whatever is available
whatever is available 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
Source: BDA Analysis 16

17. 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
17

18. VAS challenges – moving on …
Operator Challenge
Operator Challenge User Challenge
User Challenge
•• Regulatory uncertainty
Regulatory uncertainty •• Traditional VAS – SMS, CRBT and
Traditional VAS – SMS, CRBT and
around spectrum is going
around spectrum is going ringtones will continue to grow with
ringtones will continue to grow with
to continue to hinder
to continue to hinder increased awareness
increased awareness
promotion of VAS
promotion of VAS •• Awareness will remain a problem for
Awareness will remain a problem for
•• With 3G, operators will
With 3G, operators will advanced VAS services unless
advanced VAS services unless
increase their focus on
increase their focus on marketing is done by VAS companies
marketing is done by VAS companies
mobile internet VAS for
mobile internet VAS for themselves to educate users
themselves to educate users
high end users
high end users
Value
Content Localization Challenge
Content Localization Challenge Revenue Challenge
Added Revenue Challenge
•• IVR will be a solution to local
IVR will be a solution to local Services •• Advertisements will be a new revenue
Advertisements will be a new revenue
language support
language support avenue for VAS players and could
avenue for VAS players and could
•• Creating the locally relevant
Creating the locally relevant offer them the independence they
offer them the independence they
content will still require
content will still require need to succeed
need to succeed
substantial investments
substantial investments •• Mobile advertising will benefit
Mobile advertising will benefit
operators, advertisers, VAS players
operators, advertisers, VAS players
and consumers
and consumers
Device Challenge
Device Challenge
•• Devices are no more a challenge
Devices are no more a challenge
with more features getting added at
with more features getting added at
Challenge will be overcome lower price points
lower price points
•• VAS players and handset vendors
VAS players and handset vendors
Challenge may be overcome or
are forming partnerships to embed
are forming partnerships to embed
could continue to exist
applications
applications
Challenge will continue to exist
Source: BDA Analysis 18

19. 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
19

20. Industry sentiment gives a clear indication
where the revenues are likely to come from
Industry
Application For Against
Feedback
• Enhanced messaging • Convince advertisers about SMS ads
SMS
SMS experience for users • Contextual advertising could be
• Contextual targeting of users intrusive in nature
• Micro payment for merchants • As a cash & cheque country, will take
Mobile
Mobile on the move, mobile vouchers time for mass market to adopt
Commerce
Commerce
• Remittance and P2P transfers mCommerce
• Full music download & • Pricing and network quality / speeds
Mobile
Mobile streaming over 3G critical for the success
Music
Music
• Extension of current services
• Platform for youth socializing • Bandwidth hampers content sharing
UGC/SNC
UGC/SNC • Online UGC/SNC gaining • Handsets deliver poor user
popularity in India experience in viewing size & browser
• Easy learning curve, regional • Not affordable for the masses, due to
language content premium charging on per min basis
IVR
IVR
• Capable of replicating info • Lack of refined digitized local
service from SMS or WAP language content
Source: BDA Interviews and Analysis, Industry Feedback 20

21. Industry sentiment about internet apps being
ported to mobile are mixed, especially given
low data enabled handset penetration
Industry
Application For Against
Feedback
• Access IM on the move & • Premium charging for messages
IM
IM replicate internet experience • Text entry, especially for local
language
• Across business segments will • Handset cost & overall investment in
E-mail
E-mail see increasing adoption of initial implementation is high
e-mail on the move deterrent
• Access to quick, actionable • Lack of digitized locally relevant
Search
Search information on the move content (e.g. listings, maps) in India
• Useful for warehousing, field • Low level of business computerization
force resource tracking and fleet • Lack of detailed mapping content
LBS
LBS
management for businesses
• User demand not significant
Source: BDA Interviews and Analysis, Industry Feedback 21

22. 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
22

23. 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 • Overcoming challenges will rely on shifts in
declining per capita VAS usage 2006-07 Trends
2006-07 Trends industry direction caused by regulatory changes
• Declining prices induced volume growth like
• Subscriber growth at the low end has ledNumber Portability per
of Subscriber growth at the lowend has led to declining per
– Mobile to declining
• Cost • smart phones & features rich handsets
– Allocation of 2G spectrum
continue capita VAS usage
capita VAS usage
to decline, increasing adoption
– Introduction of 3G
• Non-regulatory changes like
• Declining prices induced volume growth
• Declining prices induced volume growth
– Availability of payment systems other than the
telco
2008-09 Trends
• 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,
• Continued low ARPU subscriber growth, forming
decline, increasing adoption
decline, increasing adoption
majority of net adds will ensure growth of – Promotion of bundling data plans with voice
traditional VAS – Large numbers of users experiencing internet for
first time on mobile devices
• Operators focus shifts from customer acquisition
• And continuation of ongoing trends
to VAS promotion, but 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
Source: BDA Analysis 23

24. 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 • Overcoming challenges will rely on shifts in
declining per capita VAS usage 2008-09 Trends
2008-09 Trends industry direction caused by regulatory changes
• Declining prices induced volume growth like
• Continued low ARPU subscriber growth, forming majority of
of Continued low ARPU subscriber growth, forming majority
• Cost • smart phones & features rich handsets
– Mobile Number Portability of
– Allocation of 2G spectrum
continue net adds will ensure growth of traditional VAS
net adds will ensure growth of traditional VAS
to decline, increasing adoption
– Introduction of 3G
• Non-regulatory changes like
• Operators focus shifts from customerAvailability of payment systems other than the
• Operators focus shifts from customer acquisition to VAS
– acquisition to VAS
promotion,Trends very slowly
promotion, but very slowly
2008-09 but
telco
– Ad-supported VAS gaining ground, and thus
consumers and VAS companies gain power
• Continued low ARPU subscriber growth, forming
• Device challenge will start to decline
majority of net adds will ensure growth start to declinePromotion of bundling data plans with voice
• Device challenge will of –
traditional VAS – Large numbers of users experiencing internet for
• Primary focus on reinvention of traditional on mobile devices
first time
• 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
Source: BDA Analysis 24

25. 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 • Overcoming challenges will rely on shifts in
Medium Term Growth Driver
Medium Term Growth Driver
declining per capita VAS usage industry direction caused by regulatory changes
• Declining prices induced volume growth like
•
• Overcoming challenges will rely on shifts in –industry direction caused by
Overcoming challenges will rely on shifts in industryNumber Portability
Mobile direction caused by
• Cost of smart phoneschanges like handsets
& features rich
regulatory changes like
regulatory – Allocation of 2G spectrum
continue to decline, Number Portability
– Mobile
increasing adoption
– Mobile Number Portability – Introduction of 3G
–
– Allocation of 2G spectrum
Allocation of 2G spectrum
• Non-regulatory changes like
–
– Introduction of 3G
Introduction of 3G
– Availability of payment systems other than the
• Non-regulatory changes like
• Non-regulatory changes like 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
• Continued – Ad-supported VAS gaining ground, and thus consumersconsumerscompanies gain powergain power
– Ad-supported VAS gaining ground, and thus consumers and VAS companiescompanies
low ARPU subscriber growth, forming and VAS and VAS gain power
majority of–net adds will ensure growth of with voice
– Promotion of bundling data plans with voice
Promotion of bundling data plans – Promotion of bundling data plans with voice
traditional – Large numbers of users experiencing internet for first time onnumbersdevices experiencing internet for
– Large mobile of users
– Large numbers of users experiencing internet for first time on mobile devices
VAS
first time on mobile devices
• And continuation of ongoing trends
• And continuation of ongoing trends
• Operators focus shifts from customer acquisition
• And continuation of ongoing trends
to VAS promotion, but very slowly ease of use
– Product innovation and 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”
• Primary focus Shorter VAS adoption cycles
– Shorter VAS adoptiontraditional VAS
– on reinvention of cycles
– Shorter VAS adoption cycles
& early adoption of high end services
Source: BDA Analysis 25

26. How do the numbers stack up
W-VAS Services Performance Forecast
2007 2010
CAGR% 5.9%
2.0% 3.0%
SMS (P2P) 26% 8.9% 19.8%
3.0%
30.0% SMS (A2P P2A) 20%
5.0%
CRBT / Ringtones 18%
Voice 82% 13.9%
9.0% 7.9%
Games 63%
Data 141% 6.9%
E-mail 138% 18.8%
35.0% 13.0%
Others 82%
17.8%
Overall CAGR 44%
100%= USD 926.3 mn 100%= USD 2,744 mn
VAS Revenues Forecast 2007-10
4,000
VAS as % of Total Rev
Revenues (USD mn)
12% 12%
9%
3,000 8%
7%
8% 2,774.1
9%
6%
2,000 5% 1,813.1
1,250.4 6%
926.3
1,000 678.6 3%
237.8 437.7
0 0%
2004 2005 2006 2007E 2008E 2009E 2010E
Source: BDA Analysis 26

27. 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
Source: BDA Analysis 27

28. Contact Details
Stanford University Team BDA Team
Mohit S. Gundecha Kunal Bajaj
Research Associate Director - India
Stanford Technology Ventures Program kunal.bajaj@bdaconnect.com
mohitsg@stanford.edu
mohitgundecha@gmail.com Girish Trivedi - Principal Manager
Deepshikha Garg, Rahul Gupta
Prof. Tom Kosnik Smita Sharma
Consulting Professor
Stanford Technology Ventures Program India: +91 11 4700 3100
kosnik@stanford.edu China: +86 10 8529 6164
contactus@bdaconnect.com
www.bdaconnect.com
© 2008 Stanford University & BDA