Mobile VAS not attractively priced in Middle East & Africa

Telecom operators in the Middle East and Africa find mobile value-added services (VAS) difficult and expensive to deploy, and offer unattractive and costly content to customers, said analysts.

Mobile VAS are one of the main drivers of revenue for telecom providers globally.

Mobile VAS are value- based data services such as music, movies, mobile TV, news and images among others. Customers have to pay separately for such services, charges for which are still high in the region compared to other markets.

Analysts said operators in the region can increase average revenue per user (Arpu) by focusing on content rather than voice services.

Tom Elliot, Director in emerging markets communications strategies at research and consulting firm Strategy Analytics, said: “In most markets in the region, operators have a sharply declining Arpu from voice services. This problem is particularly acute in developing countries where new subscriptions are increasingly coming from poor and rural areas, where consumers simply have less to spend on mobile services.

“Therefore, operators look to VAS as a way to increase revenues at least from a subset of their customers and partially offset declining voice Arpu. And to some extent, this strategy seems to be working. For example, Safaricom in Kenya [which offers the M-Pesa mobile money transfer service], saw its voice Arpu drop by 23 per cent between Q1 2008 and Q1 2009; during the same period, its data Arpu increased by 59 per cent.”

The market for mobile VAS in the Middle East is not as developed due to a lack of attractive and reasonably priced offerings from operators. Matthew Reed, senior analyst at Informa Telecoms and Media, said: “There are some signs of positive change, such as Zain’s digital entertainment content service that the operator launched with Rotana earlier this year. In some parts of the Middle East, such as Iraq, Jordan, Lebanon and Syria, the prospects for certain types of VAS are limited by the fact that there are no 3G networks as yet. However, the first commercial DVB-H mobile broadcast TV service in the Middle East was launched in Iraq earlier this year by Mobision.”

Services based on news, entertainment and religious content offer growth prospects in the region if operators can develop the right products at the right price.

There is potential for mobile-money-transfer and mobile banking services in the region, particularly in areas or among communities that have limited access to conventional financial services.

UAE telecom operator etisalat had recently announced interests in mobile money transfer and will be making announcements in this area.

“Clearly, the VAS situation will vary greatly from country to country within the region, with developed countries typically showing more usage of VAS than less developed ones. That said, even in the emerging markets of Africa there is selective interest in some VAS, notably mobile banking and funds transfer services such as M-Pesa in Kenya,” said Elliot.

Demand for voice and basic SMS services are growing strongly in the region, as they have in the past few years, said analysts.

Shailendra Pandey, senior analyst at Informa Telecoms and Media, said: “Operators have not been too concerned about mobile VAS that might be difficult and expensive to deploy and seems to offer little return. Another important limiting factor is the high price of mobile content services. Middle East operators typically impose high data charges, and consequently content services are expensive, which discourages customers from using them.”

Pandey said most of the operators in the region have mobile content offerings, but they are on the whole very similar “walled garden” WAP (wireless access protocol) portals populated with aggregated content.

A walled garden is an environment that controls the user’s access to web content and services. In effect, the walled garden directs the user’s navigation within particular areas, to allow access to a selection of material, or prevent access to other material. An internet service provider (ISP) may or may not allow users to select some of the websites contained or barred from the garden.

It has been described essentially as the model established by an earlier generation of European operators. The content portals include Batelco’s O, etisalat’s Weyak, Mobily’s Elhawa and Q-Tel’s Mozaic. The content categories are typically games, music, news, religious content and sports. The content formats include text, graphics, video, ring tones and SMS/MMS alerts.

The number of people using mobile music services in the Middle East is low, and the revenues from these services are low too.

Ring tones represent the biggest segment of the Middle East mobile music market in terms of users and revenues. Full-track downloads and music streaming are still very small businesses.

However, analysts from Informa Telecoms & Media believe that the limited development of the mobile VAS market in the Middle East could be set to change. As voice markets mature and mobile penetration is already very high in most of the GCC states, operators might begin to look more seriously at VAS to differentiate and maintain growth. And the rapid growth in mobile broadband subscription numbers in some countries in the region, notably Saudi Arabia, has shown that there is demand for data services.

If operators are able to take a good share of the services, the total mobile media market to handsets (excluding person to person SMS and MMS messaging) will grow at 27 per cent CAGR in Middle East and Africa, versus 21 per cent in North America, 14 per cent in Western Europe between 2008 and 2014.

Nitesh Patel, senior analyst-global wireless practice at Strategy Analytics said: “Operators will take 100 per cent of the associated transport revenues for all VAS, and also take up to 50 per cent share of content revenues generated by the sale of third party content through its portal. Importantly, with fixed internet penetration relatively lower in Middle East and Africa.”

Source: Business 24×7

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