Mobile Value Added Services – Next Milestone for Wireless Telecom Services in India

• Mobile
  Value Added Services (VAS) Market In India Estimated At $1.2 Billion
• VAS
  Market Is Growing By 65%, Estimated To Touch $2 Billion In 2007-08
• Onmobile
  Set To Become First Listed VAS Company Of India

The Indian mobile phone market is transforming from a
voice-only market to a platform offering various other kind of services. The
mobile value added services (MVAS) offered through Global System for Mobile communications (GSM) as well as Code Division Multiple
Access (CDMA) handsets now range from simple Short Message Service (SMS)-based text
applications to multimedia video clips and even live Television. The high
growth in the subscriber base of mobile phone users in India has only helped the emergence
of MVAS, which has turned out to be a good source of revenue for the mobile
phone industry.

The market size of Mobile value added services (MVAS) Industry
has been estimated at about $1.2 billion (Rs.4,950 crore) in the fiscal year
ended March 2007, according to a recent study by the Associated Chambers of
Commerce & Industry of India (ASSOCHAM), the highest body of the Chambers
of Commerce of India, providing a forum for development and dialogue between
businesses and government. MVAS market is poised to grow by more than 65% and
generate annual sales of more than $2 billion (Rs.8,200 crore) during the
current fiscal as the mobile phone subscriber base is multiplying and such
services are becoming cheaper with easy accessibility to end users. Worldwide
mobile entertainment revenues are forecast to grow to $50 billion by 2007-08.
In the Asia-Pacific region alone, mobile gaming is expected to generate nearly
$5 billion in revenues by 2007-08.

Mobile VAS are offered on multiple platforms like SMS,
voice and Wireless Application Protocol (WAP) enabled services etc. The users
of these services are spread in almost every nook and corner of the country as
result of the telecom revolution, which is seeing an addition of more than five
million subscribers a month. The exponential growth in the subscriber base is
leading to rapid growth in the business of mobile VAS also, as people widely
use their handsets to play games, download ring tones, read news headlines,
surf the Internet, listen and compose music, make others listen to their music
collection, access information from banks, railways and airlines, check exam
results or participate in contests etc.

High Subscriber
Additions Fuels The Growth Of VAS Market

Currently, the number of mobile phone subscribers in India is rising
at an average of 6 million each month. India added 6.57 million mobile subscribers (including
GSM and CDMA) in May 2007, taking the total number of mobile subscribers to 178
million, according to the figures available with telecom regulator Telecom Regulatory
Authority of India (TRAI).

About a year ago, roughly 600,000 to 800,000 ring-tones
were downloaded daily and the domestic ring-tone market was estimated at $44
million (Rs.180 crore) in March 2007. The size of this market is now growing by
more than 50% annually and is expected to grow to more than $66 million (Rs. 270
crore) by March 2008. The Indian music industry has earned more than $35
million, or 20% of its revenues, from mobile music. Mobile music downloads in
the Indian market is valued at $75 million which will further rise by more than
25% in a year’s time.

Traditional Media Finds
Interactivity And Big Money With Mobile VAS

SMS interactivity is now becoming an integral part of
most of the TV shows in India.
Leading broadcasters of the country such as STAR (Satellite Television for the
Asian Region), an Asian TV service owned by Rupert Murdoch's News Corporation; Sony
Entertainment Television (India), popularly known as Sony TV or SET, one of
India’s popular Hindi-language based general entertainment broadcasters and Bennett,
Coleman & Co. Ltd (BCCL), the largest media group in the country, publisher
of English daily The Times of India  and
TIMES NOW a 24-hour English news channel have formed separate divisions to tap
into mobile content. It is expected that interactivity through SMS will be a big
source of revenue for the TV channels in the near future.

The first version of Indian Idol, a popular song-based show
on Sony TV, got more than 55 million votes via SMS. At Rs.3 ($0.07) per SMS, the
total collection through SMS stood at Rs.16.5 crore ($4 million) out of which
the telecom companies retained Rs.11.5 crore ($2.8 million) and Sony TV made
about Rs.5 crore ($1.2 million). Sony TV claims to have got about 600,000 SMS
in just three hours after Indian Idol opened in 2004, a time when SMS as a tool
of interacting with the audience hadn't really caught on in India.

Kaun Banega Crorepati (KBC) - 2, the Hindi language Indian
game show on similar lines as the U.K. gameshow ‘Who Wants to Be a Millionaire?’
got close to 120 million SMS and phone calls. Naach Baliye, a dance competition
on Star One, part of the STAR TV Network, netted 1 million SMS in December
2005. Sa Re Ga Ma Challenge, an on-air nation-trotting talent hunt show, on Zee
TV, the oldest private sector entertainment broadcasting company gets about 100,000
SMS in a single day. The Sun Network, Indian cable television network based in
Chennai, the capital city of the state of Tamil Nadu gets between 50,000-150,000
SMSes each day for its various channels.

For media companies, currently, the mobile connection is
more about interactivity and less about revenues, highlights the ASSOCHAM
report. FM radio channel owned by BCCL, Radio Mirchi gets 50,000-60,000 SMSes a
day. As a radio station, it is a great tool for engaging listeners. And the same
is true for TV, newspaper or outdoor companies also. Even within this
interactivity, there is some money to be made like Star did with KBC-2.

A Buzzing Segment For VC
& PE Investors

The flourishing prospects of the mobile VAS segment in India has led
to evolution of a number of VAS companies that have made good fortunes in a
short time. The Online Services and
Mobile VAS sectors have emerged as the favorite sectors among Venture
Capitalists (VCs), accounting for almost 50% of all VC investments in the IT
& ITES industry, according to Venture Intelligence, a research firm
that tracks venture capital and private equity investments in India.

Onmobile, Bangalore, IT capital and capital city of the
south Indian state of karnataka-based mobile VAS provider incubated by India’s
second largest information technology services exporter Infosys Technologies
Ltd, which had secured funding of $27.8 million (Rs.128 crore) from Deutsche
Bank AG, Frankfurt, Germany based banking and financial services firm; The
Goldman Sachs Group, Inc., one of the world's largest global investment banks
and the U.K.-based private investment firm Polygon Investment Partners in
October 2006, is now planning to float its initial public offering (IPO) of about
$125 million - $150 million (Rs.500 crore – Rs.600 crore). In the first round
of funding, Onmobile had secured $18 million (Rs.73 crore) from venture capital
firms Argo Global Capital with investment focus in convergence of wireless
communications and the Internet; and HNQ Asia-Pacific in 2000. Onmobile, headed
by a former Infosys employee Arvind Rao, has annual revenue of about $50
million (Rs.210 crore).

Earlier, mobile commerce software provider JiGrahak
Mobile Solutions Pvt Ltd had received $2.2 million funding from Helion Venture
Partners, India-focused venture fund focused on investing in high growth
technology sectors started by Woodside Venture Partner located in Silicon Valley, in August 2006. PaymateSydney,
Australia, a
startup that offers text messaging based payment system had secured an
investment of $5 million from VC firms Kleiner Perkins Caufield & Byers and
Sherpalo Ventures. Pty
Ltd, headquartered in

Mauj Telecom, another emerging VAS provider that focuses
on gaming, ring tones and multimedia, had raised $10 million from WestBridge
Capital Partners, an Indian VC firm which had around $350 million under
management that was acquired by Silicon Valley based Sequoia Capital; Intel
Capital, the venture capital arm of world’s largest chip maker Intel
Corporation and Sequoia Capital in February 2006.

Hungama Mobile, based in Mumbai, the financial capital of
India and a leading provider of mobile marketing applications; IMI Mobile, a
next-generation end-to-end enabler of mobile value added services for mobile
operators; One97 Communications, an
integrated – voice, data and Intelligent Networks based – telecom VAS provider;
Bharti Telesoft Ltd, part of Bharti Enterprises the parent company of Bharti
Airtel Ltd, the largest GSM mobile service provider; Nazara Technologies Pvt
Ltd, mobile entertainment content provider in India; Bubbly Motion Inc Mountain
View, California-based, provider of voice applications and services for mobile
operators; Mobile2Win, a Siemens Mobile Acceleration, Softbank and Contests2win
invested company) creates mobile entertainment solutions; and Cellebrum.com Pvt
Ltd, a MCorpGlobal group company and Asia's leading integrated telecom VAS
solutions provider are a few other prominent MVAS players.

The MVAS segment has started figuring in the list of merger
& acquisition (M&A) deals too. MIH India, a unit of South African media
conglomerate Naspers has acquired 30% stake in Indian MVAS provider ACL
Wireless reportedly for a consideration of $12.3 million. Seven year old ACL
Wireless, which has about 220 employees, was initially funded by Hong
Kong-based VC firm Inter-Asia Venture Management (IAVM).