By Huma AbidAssistant Director (Strategy & Development Division

WHY VAS? FTTX, 3G & 4G services, even up coming 5G marks a new era of Broadband Band - several new trends are emerging

Telecom shifting to value addition - VAS sweeping revenues of telecom industry

FLOW..

1. Definition of VAS2. Emergence and Evolution of VAS3. The Shape of Telecom Market4. Need for Regulation5. Platforms For VAS

DEFINITION OF VAS

Defining VAS WTO FCC TRAI

Basic Services eaten up by VAS Points to Ponder

DEFINING VAS In its simplest and broadest terms, a “value-

added service” is a telecommunications industry term for non-core services or, all services beyond the standard voice call service

offering (“basic service”) or, Conceptually, value-added services add value to the

standard service offering or, Stand alone in terms of profitability and/or stimulate

incremental demand for core service(s) an additional service for which subscribers pay extra Do not cannibalize basic service unless clearly favorable

DEFINING VAS: World Trade Organization

Value-added telecom services are telecoms for which suppliers “add value” to the customer's information by enhancing form or content or by providing for storage and retrieval.

FCC“VAS” is an “information service,”- categorized/ defined as:

“The offering of a capability forgenerating, acquiring, storing, transforming, processing, retrieving,

utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control, or operation of a telecomm system or the management of a telecom service”

TRAI Value Added services are the enhanced services, in the nature of

non-core services, which add value to the basic tele-services and bearer services, the core services being standard voice calls, voice/non-voice messages, fax transmission and data transmission". (press information Bureau 2010)

VAS today - Basic Service Tomorrow

VAS has a certain time dimension associated with it. Value-added service today can become a basic service

when it becomes sufficiently commonplace widely deployed no longer provide substantive differentiation on a relative basis, i.e., the great majority of users have it.

POINTS TO PONDER

VAS has Time Dimension Associated With It

anticipated a decade ago

Traditional Voice: The Voice only service

may someday become just one more

value-added service riding on a broadband

platform. Traditional TV: The Delivery of audio and video over

the Internet may substitute for, and in some cases replace, traditional broadcast and multi-channel video (cable, satellite, IPTV) services.

And it’s a Reality today…The Basic Voice Telephony and Traditional TV are evolving to be just a VAS riding on BB Platforms

BASIC SERVICES EATEN-UP BY VAS

EMERGENCE AND EVOLUTION OF VAS

Brief History of TelecommunicationEvolution of VAS Forces Driving Evolution of VASVAS in the Telecommunication Services

Landscape

BRIEF HISTORY OF TELECOM Samuel Morse :- electrical telegraph – 1837

Alexander Graham Bell :- the telephone – 1876

Bell Telephone - 1877 - local telephone exchanges AT&T -1885 - connected the local Bell companies

Telephone industry opened to competition-1894

Over 6,000 companies grew in ten years

AT&T became a regulated monopoly in 1913. Initial years based on overhead wires connected to manual

exchanges- most countries around the 1900s

 Electromechanical switches appear -1930s replacing manual operators, allowing dialing a number by subscriber/user

…..BRIEF HISTORY OF TELECOM First telecom satellite launched - 1966

7 Regional Bell Operating Companies (RBOCs) established 1983

Telecom Act 1996 - Major overhaul of telecom law in 62 years. Allows anyone to enter communications business. Allows any communications business to compete in any market

2004/2005 a phenomenal change deployment of Broadband - FTTX and 3G, 4G Networks

supporting seamless and ubiquitous services in United States, Japan, and South Korea.

Now in 2015 and beyond, in the words of Bill Gates, “The PC is the Phone and Phone is the PC”

Evolution of VAS

USAGE OF VAS

The usage of the available VAS services can be seen in the graph.

…EVOLUTION OF VAS

FORCES DRIVING VAS EVOLUTION

Source: Telecommunication Handbook

VAS IN TELECOM SERVICES LANDSCAPE

THE SHAPE OF TELECOM MARKET

The Shape Telecom Market TodayForces Driving the Telecom through 2015Future of Telecom MarketSuggestions for Better Survival of SPsImpact of VAS on Market Structure

THE SHAPE OF TELECOM MARKET TODAY

More change in the last 10 years than the previous 100The way in which the world communicates has changed more in the last decade than in all previous history.

The mobile migrationYear No. of People having access to telephone

4Q of 1800 Invention of Telephony

1999 1 out of 6 people in the world had access to Telephony

2009 7 out of 10 People in the world had mobile

Source: IBM Report ‘Telco 2015’

MOBILE RESHAPING TELECOM SECTOR

CHANGING FACE OF COMMUNICATION

Past decade - Internet access and connectivity shifted from dial-up to broadband i.e Higher data speeds through Digital Subscriber Line (DSL), cable modem and fiber, BB wireless access technologies

Today, communications fragmented across online services (VoIP, peer-to-peer, social networking, e-mail, instant messaging, blogs, forums, wikis and more) and telecom services (fixed and mobile voice, SMS, MMS).

Non-traditional communication services in advanced markets grown overall, outgoing call minutes from traditional telecoms have remained relatively flat.

Challenge for the industry- devise a way to better monetize this massive growth of OTTs

France (2005 to 2010)

Call Minutes Fixed & Mobile OTTs*

2005 190 bn 303bn

2010 207 bn 942 bn

% Increase 9% 211% Source: IBM Report ‘Telco 2015’, OTTs include VoIP, peer-to-peer and instant messaging

THE DECOUPLING OF TRAFFIC & REVENUE

Toward the end of the last decade, growth of mobile broadband was enormous

With flat tariffs, costs no longer match revenues for delivering an ever-increasing amount of data over a network designed to support narrowband voice and lightweight download, Web browsing and e-mail.

Customer Adoption

of BB

Aggressive Pricing

Attractive Bundled Packages

All u can eat Bundle

Pay as you go option

Revenue and traffic volumes are disconnected as telecom becomes more data/connectivity-centric.

Historically, traffic and revenue tracked along the same path.

Past ten years- divergence disassociation of revenue & Traffic a major concern

THE FLIGHT FROM THE NETWORK

Reduction in capital costs- telecom providers are turning to network outsourcing, infrastructure sharing,

Even amongTier-1 providers such as Vodafone.

Vodafone UK (2009) Ericsson for O&M of 2G& 3G

France Telecom NSN Network Management

Number of outsourcing deals rise from six (6) in 2004 to 90 in 2008.

Outsou0rced

Outsourced

FORCES DRIVING TELECOMMUNICATIONS THROUGH 2015

FUTURE OF TELECOM MARKET

Although increases in mobile Internet usage and changing face of communication offer a glimmer of hope – along with a host of operational challenges – the telecom industry faces some serious questions: Where will future growth come from? How will the industry evolve?

These uncertainties reveals four contrasting scenarios depicting

What the industry could look like five years from now..

Cash Crisis Industry Consolidation

SCENARIO#1

SURVIVOR CONSOLIDATION

Reduced consumer spending leads to revenue stagnation/decline.

Service providers in developed markets not significantly changed voice communications/ closed-connectivity service portfolio.

Not expanded horizontally or into new verticals

Investors’ loss of confidence in the sector produces a cash($) crisis- results in industry/survivor consolidation

SCENARIO #2

MARKET SHAKEOUT Different Profile Business: Under a

prolonged economic downturn and inconsistent financial recovery, investors force the providers to disaggregate assets into separate businesses with different return profiles. Retail brands emerge to collect and package services from disaggregated units.

Connectivity sold to App providers: Service providers look for growth through horizontal expansion and premium connectivity services sold to application and content providers

Inconsistent Economic Disaggregate Business forRecovery different Return Profiles

SCENARIO #3

CLASH OF GIANTS Providers consolidate: Providers cooperate and

create alliances to compete with OTT players and device/network manufacturers that are extending their communication footprints.

Focus shift to selective verticals: Mega-carriers expand their markets through selective verticals (e.g., smart electricity grids & e-health) for which they provide packaged end-to-end connectivity solutions.

Premium Network Service Portfolio by Telco: Telco develop a portfolio of premium network services and better- integrated digital content capabilities to deliver new experiences.

Providers Consolidate to Compete OTT PlayersMega Carriers expand their market to provided end to end solutionTelcos develop Portfolios of Premium Network Services

SCENARIO #4

GENERATIVE MARKET Barriers between OTT and network providers

blur as regulation, technology and competition drive open access.

Infrastructure providers integrate horizontally to form a limited number of network co-operatives that provide pervasive, affordable and unrestricted open connectivity to any person, device or object, including a rapidly expanding class of innovative, asset-light service providers.

Barriers b/w OTTs and Infrastructure providers Network Operators Blur provide affordable connectivity to any

SUGGESTIONS FOR BETTER SURVIVAL OF SP

Current growth model - based on an ever-expanding customer base, the industry is likely to experience flat or declining revenues

Return path to stronger growth - industry needs to act collectively to create the conditions necessary for the more dynamic

and profitable scenarios

They can begin to accomplish this through greater global industry cooperation on common capabilities

Platforms to improve competitiveness with global OTT providers.

The role of service providers can be enhanced in adjacent vertical markets, enabling new business models in health, smart grids, transport, retail, banking and more.

Further growth can be achieved through persistent, open connectivity for any person, object and a multitude of connected devices by stimulating third-party innovation and leveraging customer and network insights to deliver new experiences that help to accelerate the evolving digital economy.

IMPACT OF VAS ON MARKET STRUCTURE

Technology Changes have allowed VAS Providers to move upstream

Network

VAS

• Horizontal Market layers have blurred• Neighboring market layers have

converged

Search for enhanced margins have driven carriers further down the value chain

Entry of competitors from neighboring markets e.g, broadcasting, content, software

NEED FOR REGULATION

Why RegulationsChina Case Study On Reforming The VAS

Policy for re-normalization of the Market Lapse in the Regulatory System Reasons for the failure of the earlier

policy framework VAS Challenges to China compared to US Cleanup of Industry

WHY REGULATIONS

Two Roles of Regulation in traditions VAS Market

1. Maintain boundary between the fully liberalized VAS market and the partially/less liberalized basic services market

2. Regulate contractual relationship between stakeholders

REFORMING THE VAS POLICY FOR RE-NORMALIZATION OF THE MARKET

China went through a process of reforming the VAS Policy for re-normalization of the Market

This was based on the complaints of hundreds of customers about misleading practices, unfair pricing, inappropriate content and illegal behavior,

Many companies received administrative punishment from the Ministry of Information Industries (“MII”), acting as telecommunications supervisor, and had their contracts terminated by the basic telecommunications carriers.

CHINA - CASE STUDY

Re- Normalization of Market: Corrective actions have, for a time, re-normalized the market; however, the VAS regulatory framework, and especially its shortcomings, has attracted widespread attention. This hassled to the need for the development of a new policy better suited to changing circumstances and the evolving marketplace.

Lapse in the Regulatory System:

The MII is limited both by the absence of an effective supervisory mechanism and the absence of an unambiguous and explicit regulatory

authority. This caused difficulties in the operation of the

regulatory mechanism as well as with the healthy functioning of competition and collaboration in the VAS market.

REASONS FOR THE FAILURE OF THE EARLIER POLICY FRAMEWORK

Minimal Regulations: At that time, the VAS market in China was in confusion, with minimal regulation, which has resulted in a variety of consumer abuses, and in the effective regulation of VAS entities being shifted largely to the carriers, which are also in many cases their competitors.

Minimal Intervention of Authority: By large, China’s governmental authorities have not directly intervened in value-added telecommunications in the daily conduct of operations, so the basic telecom operators have been acting in the de facto role of manager of value-added service providers, and directly control their survival.

SUGGESTION FOR CLEANUP

Standardizing Behavior of Basic Operators: In order to realize fair competition between value-added enterprises and basic telecom operators, and to prevent basic telecom operators from squeezing out the value-added enterprises, it will require standardizing the market behavior of the basic operators

MEASURES FOR CLEAN UP

Annual Inspection: From 2005 onwards, the focus of VAS regulation has shifted to the service providers’ qualifications and operations supervision, regarding which the MII mainly adopted annual inspections to eliminate unqualified service providers and made them take corrective measures.

Technical Standards: Meanwhile, the MII’s administration of service quality gradually shifted to technical standards.

Harmonization of SMS: An important initiative was in July 2006, when it released the "Notice of MII on adjustment and harmonization of short message services access code" to adjust and unify SMS and other services’ access code.

Clean up: From the last half of2006 into 2007, the MII also launched clean-up activities in the market, with a focus on enforcing the administrative laws, and regulating market order.

PLATFORMS FOR VAS

Delivery Platforms for VASLatest Developments and trends in VAS

Platforms

DELIVERY PLATFORMS FOR VAS

MVAS are mainly based on three different delivery platforms: SMS, interactive voice response (IVR) Wireless Application Protocol (WAP) Portals*

Each VAS has its own characteristics and relates to other services in a unique way.

*WAP is specialized version of web browsing for mobile handsets.

Delivery Platforms

Entertainment Alerts & News Commerce Social VAS Enterprise VAS

SMS 1. SMS2. Ringtones/

CRBT3. Customized

Wall papers4. Animations5. Quiz6. Jokes

1. Cricket/Match alert

2. News3. Astrology4. Personality

Tests5. Banking Info6. Travel

alerts/details

1. Mobile Banking

2. Ticketing3. Travel n

Holiday Bookings

1. Location search

2. Advertisement

1. Pull on Short Codes for Content, Voting, information

2. Push for Advertising3. LBS System4. Enterprise IM5. Group Messaging

IVRs 1. Religious Chats

2. Music On Demand

1. Astrology2. Personality

Test

1. Mobile Banking

2. Ticketing

1. Astrology Services

2. Voice SMS

1. IVR Based Contact centers

2. Self Help Counters3. Voice Portals

WAP Portals

1. Video Clips2. Mobile

Games3. Mobile

Themes4. Mobile

Radio

1. Movies related Info

2. Stock Portfolio Messages

3. News Alert

1. Mobile Banking

2. Ticketing3. Travel &

Holiday Booking

1. Mail2. Mobile

Greetings3. Dating,

Chatting, Blogging

4. Infotainment

5. Messenger

1. LB Info2. Internet Mobile

Email3. Mobile Calendar4. Access to Internet &

Core Business Applications

5. Mobile VPN6. Push Email on Many

Devices (e.g. Blackberry/ Wireless email

LATEST DEVELOPMENTS AND TRENDS IN VAS PLATFORMS

The VAS cloud Platforms with Integrated Service and Multi- Vendors

managed services : saves millions of dollars for vendors migrate almost 85 % of the services from physical

servers to virtualization environmentReduce Hardware numbers and energy

consumption to save Total Cost of Ownership (TCO) It's a well pre-integrated service, has openness. It

has Unified O&M and professional tools to improve maintenance efficiency.

constant service innovation like industries to evolve to digital service cloud

VAS ON A SEPARATE ORTHODOX PLATFORMOrange Spain Facing High VAS TCO Challenge

1184 servers from different vendors

196 services from different vendors

High hardware maintenance cost Many servers will be EOL43

VAS ON SINGLE CLOUD PLATFORM

THANK YOU