Trai's 'customer-unfriendly' directive hits small VAS players

Restrictions on promotion of caller tunes or other updates via SMS and outbound dialler hurt companies' revenues

Small enterprises that provide value-added services (commonly known as VAS) to mobile telecom service providers are facing hard times. VAS like ring tones, caller tunes, games, entertainment and sports updates are offered to mobile telecom subscribers by their service providers, but are actually created by small VAS providers.

Over the past few months, revenues of these companies have declined drastically. The Telecom Regulatory Authority of India (Trai) had issued a directive in July last year, making it mandatory for mobile telecom service providers to seek explicit permission from subscribers through SMS, email, fax or in writing, within 24 hours of the activation of any VAS, and charge consumers a price only if they confirmed that they wanted such services.

The regulator clearly laid down that telcos should discontinue such services for consumers if confirmation is not received in the stipulated time for services activated via outbound dialler (a call initiated by service providers) or during a pre-call ring-back announcement.

The fallout of the new guidelines was that operators refrained from making promotional calls or sending text messages to sell VAS to their subscribers. Although other ways of VAS promotion - like one-liners appearing on the mobile screen and promotions printed on bills - are allowed, the business of VAS providers has been affected.

According to Newton Babbar, managing director and CEO of Goldfinch Mobile Solutions, the restriction on promotion though SMS and outbound dialler has substantially undermined revenue. "Our revenue has dropped 70 per cent in the last few months," said Babbar, adding that his company had not yet reached the break-even point when returns started dwindling.

Revenue sharing for services provided by SMEs is a matter of the telcos' discretion. When volumes were high, small VAS providers' thin margins did not matter, but slim margins combined with shrinking volumes have made survival difficult, he added.

Anuj Aggarwal of Altruists Technologies, which has operations in Mumbai and Chandigarh, said revenues have nose-dived, as promotional opportunities have declined.

"Our bottomlines have been hit, but our international expansion has saved us. The acquisition of Teligent (a VAS provider based in Sweden) in 2012 has offered a big cushion against the volatility in the domestic market," he said. Aggarwal believes that India's competitive edge in software development in global markets can help make it a strong VAS player. His company is scouting for possible acquisitions in South America to add new geographies to its business, and is in an advance stage of negotiations.

Rajan Mathews, director general, Cellular Operators Association of India, said the dissemination of information about available VAS was a must to attract customers for such services, adding that Trai's directive was not customer-friendly. The industry is holding discussions with the government departments concerned in a bid to have Trai's guidelines revised.

VAS generate 10 per cent of the total revenue of the industry. Sources in the industry estimate employment (direct and indirect) in the VAS segment at about 100,000.