photo-arvind-rao-ceo-onmobileOn the sidelines of VAS Asia 2009, MediaNama spoke to Arvind Rao, CEO of OnMobile Global, a BSE listed Mobile Value Added Services services company. During his keynote address at the conference, Rao had cautioned the industry against expection growth to continue. Dow Jones Newswires has subsequently reported that OnMobile is scouting for acqusitions in US and Europe, and the maximum the company is looking to spend is between$50-60 million.

Excerpts from our conversation with Rao:

Is the VAS market stagnating?
I was telling people to be cautious..have cautious exhuberence. In the past, the industry has grown at 60-70 percent a year, and the expectation is that it will continue. All of us would like for that trend to continue, but I want to be a little more cautious because we’re seeing a few things that are new. One is that the ARPU of the new people coming in is substantially low. We have data that shows that people are recharging Rs. 10 at a time, and 60 percent of people have less than Rs. 90 at a time. We cannot charge the way we used to charge 2-3 years ago. That will dampen the way the industry grows in the future.

The other one is the TRAI regulations, which is why we have to seek double confirmation on subscriptions, subscriptions on SMS services and outbound dialers…

You were going to contest that, right?
We didn’t contest that, but we gave alternate solutions, a more moderate way of achieving the same objective, and they’ve adopted those. But that will still affect the growth in the near term.

Has VAS usge been affected by the recession and the dampening of market sentiment?
I cannot see a correlation between the macro-economy and VAS usage. What is interesting is, as you go more and more into the rural areas, the impact is even lower, because they’re cut off even more.

What kind of products do you have for rural, given lower margins and balance?
In rural, people spend much more on VAS as a percentage of ARPU. On Ringback Tones, Voice Portals, SMS, USSD. They keep recharging. The pricing has to be dynamic – by the day, by the week. Instead of being charged Rs. 30/month the recharge is Re. 1 per day for, say 3 days. We’re trying out different packages for different second, to keep the overall revenue/subscriber per month flat or increasing.

How does it impact you if a telecom operator gives content free along with a connection (in the Rural market)?
It doesn’t impact me. If it impacts anybody, it is the content provider. The operator pays for that directly.

In your keynote address, you’d mentioned in your speech that Saregama makes Rs. 2-3 crores a month (from mobile music)?
I didn’t say that. I said that there are companies like Saregama which have music catalogs that weren’t monetizable 2-3 years ago, who are earning that level of money today. We provide the technology to many operators. In some of the cases we bill it to Saregama and PPL directly, in some of the cases we generate the volumes because of our technology. The catalog was earning almost nothing – who could find a Kishore Kumar song? I’m not going to search on the 10th page for that song, but with Music Search, I can say the name and find it. So you need to add that as well.

What next for OnMobile, beyond Voice?
The next one is 3G data services and mobile marketing. 3G allows you video streaming, multiplayer games, which you cant do without bandwidth. We’re looking at Location Based Services, but it’s going to take a long time. 3G is not going to be fireworks, it will take 3 years. We have our R&D pipeline, and are working on a roadmap.

How’re things shaping up on the International side? Any Vodafone launches?
We’ve gone live in Romania and South Africa. We’ve gone live in Romania. Vodacom is being launched in October. Another 3-4 are in advanced stage, and another six where we are in discussions. Pipeline is strong, but the challenge will be execution, not sales and business development. How do we deploy in 10-12 new countries, and still maintain the momentum on India side?

Is competition increasing on the India side? Also, the market is increasing on the low ARPU customers…
Competition is increasing, but the market is also increasing. Low ARPU users pay with sachet pricing. In the long run, it’s a different matter. As someone pointed out, even if 3% of access is high-end (consumers), 3% of 400 million is 12 million. We have been so heavily focused on mass market applications, we haven’t had time to focus on this market which is potentially large in absolute terms. I think the smart phones will change things there.

Are you deploying with any of the new operators?
We have signed up with one, but they have to start, build a subscriber base and then we can migrate them on to VAS. It will take a while.