PEs look at mobile VAS providers

Notwithstanding the lull in the industry, mobile value-added service (VAS) providers are getting fresh calls for investments from global private equity and venture capital funds, with some even close to sealing some deals.

Investment firms such as Helion Venture Partners, Canaan Advisors, Matrix India Asset Advisors and Fidelity are some , which are scouting for investments or acquisitions in the sector. In February, the sector witnessed a couple of activities -- New Delhi-based MapmyIndia received a $9-million funding from Qualcomm Ventures and ValueFirst received $6 million from New Enterprise Associates. Many more deals are expected to be announced shortly.

So, what makes this industry tick, though it is yet to become mainstream sector?

According to BSNL Deputy Director General (VAS) S S Sirohi, mobile VAS has a tremendous revenue-generating potential, though it has only started to pick up in the country.

"It has potential to generate huge revenues of around Rs 18,000 crore by 2012 for mobile service providers. This year itself, VAS will contribute around Rs 6,000 crore of operators' total revenues," he added.

The telecom industry estimates that VAS generates around Rs 5,500 crore currently, with SMS making up the major chunk of the pie. Ringtones and music downloads, gaming, videos, wallpapers and caller-back ringtones are other VAS revenue earners, contributing around 10-14 per cent of an operators' revenue.

"We see an enormous opportunity in the mobile VAS space, as the entire segment is growing at around 30 per cent on a month-on-month basis.

Good VAS solutions are necessary to sustain subscriber interest, while we expect SMS-driven applications (like voice SMS) and mobile commerce to set cash registers ringing," Helion Venture Partners Managing Director Ashish Gupta said.

Helion Venture is in talks for many deals, Gupta confirmed. It had earlier invested $13 million in Kirusa (2008), $10 million in SMS GupShup (2008) and $2.5 million in NGPay (2007) among others.

Nazara Technologies, a VAS provider, CEO Nitish Mittersain opined: "More important than the revenues, it’s the ability to retain subscribers that make VAS the darling of these companies. Investors are looking at owning around 15-20 per cent stake in VAS firms, and talks are on with many firms."

There are an estimated 50 VAS firms in the country, including OnMobile (which went public in 2008) and Hyderabad-based IMImobile (which acquired Music2You service recently.

Canaan Advisors Executive Director Harish Gandhi is of opinion that the VAS is yet to become the mainstream, and companies like his need to invest "before the market or the industry becomes a mainstream".

Canaan had earlier invested in two Indian VAS firms, Cellcast Asia Holdings and mCarbon, but would look at further investments.

While Gandhi believes application development is "relatively simple" and monetisation not quite easy, differentiating services is the key to success.

To differentiate their services from competitors, telecom firms are also increasingly entering into tie-ups with content providers. Last month saw at least three deals, - Vodafone signed up with Amar Chrita Katha, Idea Cellular with Bharat Matrimony and Reliance Communications installed global major Flytxt’s marketing platform on its network.

With 3G services round the corner, telecos expect data to gain prominence over voice, and this again brings VAS companies into the fore.