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.

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.

(republished from Nextwala blog)