Telcos' new trouble

Dependence on caller tune revenue must be replaced

Mobile service providers are braced for massively higher spectrum costs and capital expenditures. But a revenue crunch is also staring them in the face: the biggest contributor to value-added services (VAS), caller tunes, has seen a drastic decline in uptake. Caller tune subscribers pay Rs 30 a month, plus a fee on every download, to contribute over 50 per cent of all VAS income and about two per cent of revenues. Copyright holders (mostly the domestic film industry) get 30 per cent share of download revenues, but subscriptions accrue entirely to telcos. The implementation of a regulatory directive on the confirmation of VAS services has triggered a reduction in caller tune subscribers from about 100 million (June 2011) to around 55 million (December 2012). Downloads have also shrunk. Music providers' revenue share dropped 20 per cent. The industry body estimates that 80-90 per cent of the caller tune subscriber base will eventually exit. The regulator acted after a 2009 survey revealed almost a quarter of users had not provided explicit consent before being provided, and charged for, a value-added service.

No other revenue stream is growing at great pace. Average revenue per user is stagnant; GSM ARPU stands at Rs 95 a month, while CDMA revenues are Rs 76. Revenue growth from both voice (which contributes 85 per cent of revenues) and SMS (seven per cent) is flat. Revenues from data (ex-SMS, six per cent) are the only apparent growth area at about 20 per cent, and those from VAS (three per cent) have declined. The Indian telecom industry, once the fastest growing in the world, has lost tens of millions of subscribers. Although many of those deactivated connections were inactive, genuine subscribers have also economised by terminating extra connections. While urban penetration is near-saturation, new rural roll-outs must wait for spectrum auctions, regulatory clarity on a variety of major issues and financing.

The adoption of affordable smartphones, phablets and tablets by a young subscriber base will inevitably lead to more changes in usage patterns. Over half of subscribers are under 25. Many of them use data applications such as Net surfing, gaming, social media, and instant-messaging in preference to voice and SMS. Most download free music and few will pay for ringtones. Operators must adapt to the changing user profile and encourage migration to high-speed 3G and 4G networks to grow data usage. They must also encourage the use of phone apps to drive data. Most apps are developed by independent programmers with the revenues from app store downloads shared by telcos and developers. Independent app developers complain that operators do not offer good terms. Such developers claim the lack of incentives has stifled growth in the Indian app market.

The drying up of the caller tune revenue stream should galvanise operators into reviewing their strategy. Building bridges with app developers should logically be part of the new game plan. In more sophisticated markets, data business generates up to 30-35 per cent of revenues and, therefore, rapid growth in data usage appears to be possible. Operators must target a rapid expansion of this segment to raise ARPU in a meaningful fashion.