Value Added Services or simply VAS is the buzzword slowly gaining a foothold into the hearts and minds of the Indian consumer. Simply put it’s a form of service that adds value to total service offering and stands alone in terms of profitability and/or stimulates incremental demand for core service(s). It can be an add-on to basic service, and as such, may be sold at a premium price and is used to provide operational and/or administrative synergy between or among other services. A value-added service might become a basic service when it becomes sufficiently common place and widely deployed. Since, it no longer provides substantive differentiation on a relative basis, a VAS becomes a base service.

Currently two types of VAS exist, one which is stand alone from an operational perspective, not to be coupled with other services (voice & non-voice services fall into this category). These are often provided as an optional service along with voice services, but they could be offered and used by themselves without the voice service. Another is services that do not stand-alone and which add value to existing services.

The VAS market constitutes about 10-12% per cent of the total revenues for telecom operators in India. With 3G services jostling its way in, the VAS industry is expected to increase its share manifold, with some industry estimates pegging the figure at 40% by 2015. The prime movers in the VAS industry are Bollywood and Cricket, but we see other content like gaming etc fast catching up. The reason why VAS market is growing is due to improved regulatory structure, reducing handset prices, unprecedented mobile growth, and reduced tariffs leading to declining ARPU’s. Subsequent to this Telco’s are looking for alternative offerings like VAS in order to tackle high competition due to reduced barriers to entry and the impending Mobile Number Mobility regulation.

The key challenges facing the VAS industry are regulations with copyright, operators’ revenue shares and infrastructure bandwidth. Operators and providers will have to be little proactive in the industry to beat the stiff competition by making marketing a continuous process, identifying new business opportunities and developing a clearly defined value proposition for the target market.

A couple of years back, mobile operators only focused on expanding their networks and improving their subscriber base. Today, to supplement stagnant voice revenues, cellular operators are turning to VAS to boost revenue in both data and value-added voice services. Also, with 3G mobile services, service providers would bank on the VAS segment to bring in additional revenues. Improved technology, phones with larger screen sizes and multimedia capabilities, improved GPRS networks will be key drivers of the VAS segment. Some key future growth areas for VAS would be in the fields of SMS, IVR – in areas of low literacy rate, Mobile Music, Internet Applications, Search – SMS based search, User Generated Content / Social Networking Communities & mCommerce which currently has limited scope due to security and penetration consideration.

With revenues currently skewed in favour of the operators not much content is created and made available for the mobile. With mobile operators currently focusing on expanding their networks and improving their subscriber base focus would shift once operators achieve saturation point and witness further dip in ARPUs. Market dynamics will eventually sort out the disparity in revenue sharing.