When asked on their earnings conference call about the implications of Telecom tariff wars in India for mobile Value Added Services in the country, OnMobile CEO Arvind Rao suggested that the situation offers opportunities for VAS: “For most telecom operators VAS is the golden goose today, and I don’t think any of them are going slash pricing.” He said that over the years, the decline in price of voice calls has been much more significant than that in Voice Portal call rates; Prices will change, but not in a manner that it affects Price into Quantity result (PxQ). “So far we’ve not seen any operators trying to squeeze us on revenue share. Revenue share prices are much lower than what we are getting in the international market. Operators also understand that if we have to invest in R&D we need a certain pricing.”
Responding to MediaNama’s question about whether, as the market leader, OnMobile is priced at a premium to its competitors, and hence likely to face pricing pressure, Rao said that they’re not making a premium, adding that “In many cases, people are being paid at a higher price than us because we have larger volumes, and are further down the volume-scale curve.” On whether, then, there is room for OnMobile to increase price, Rao said that the company would rather increase marketshare.
During the call, he pointed out two key trends: “Firstly in near term, in telcos, we’ve noticed some some distraction in terms of senior management, which is focused on new entrants and pricing wars. Secondly operators have emphasized their dependency and are looking at VAS as a savior. Operators are approaching us in India, and asking us for every product even if half developed or not fully tested, to roll out and ramp up revenues. They are looking 2-3X growth so there is immense pressure on us to accelerate our R&D.” Speaking to MediaNama later, he said that there’s no decline in consumption among VAS consumers: “There’s no decline in usage in the old users, no shortage of take rate, just the ability to pay. We’ve to change the pricing models accordingly.”
Impact Of Customer Loss
“The impact is in last quarter and this quarter, and at best thre may be a small impact next quarter, and within another 1-2 quarters, we would have overcome that. We did not have RBT with that customer, so hence there’s no impact. It was a voice portal customer,” Rao said, responding to a question about termination of business with a client. Speaking to MediaNama later, he declined to comment on the client, saying that they do not discuss individual customers. Revenue, had that client been on board, “would have been higher, by maybe 5-10%, not that much more. We were with that operator with voice portal etc, not the core ringback tone business.”
Comparing Telefonica & Vodafone Deals
At present, around 70% of OnMobile’s revenues are from India, as compared to 100% 3 years ago. When asked about the Telefonica and Vodafone deals, company executives made the following points:
Telefonica is a forced deployment, in return commitments from both parties, there is a timetable that all 13 countries will launch within a short timeframe. In case of Vodafone, the investment and CapEx required can be based on when OnMobile signs up an operator and deploys. The investment in case of Telefonica is more front-end loaded, and hence OnMobiles quarterly numbers are being affected. The Vodafone transaction is being funded organically by cashflows and reserves. Sanjay Uppal, President & COO at OnMobile added that these deployments have a reasonably quick break-even time. Rao said that OnMobile’s intention is to not do forced deployments: “there are limits to how many forced deployments we can take on because they are not easy.”
After deployments in Romania and Vodacom, OnMobile claims it is “being pursued” by Vodafone operators from Hungary, Australia, New Zealand, Egypt. OnMobile CTO Mouli Raman said the Telefonica rollout will be over 15- 18 months, with the first phase going live before April 2010, and the subsequent rollout in the next 12-15 months.
Rao said that the company is in discussions with many groups: Etisalat, MTN, Telenor, Orascom, Orange. “We have had discussions with most of them, in many cases, in advanced discussions and in some, preliminary discussions. It is very difficult to give a sense the timing of when it will happen.”
— Churn Management: OnMobile had implemented a churn management project 2 years ago, for reducing churn on their RingBack Tones product. Rao said that the company “has a customer database of around 110 million subscribers, tracking their usage, profiles, which has allowed us to reduce churn on our existing RBT deployment by almost 10% on our existing deployment. An international operator has asked us to apply it to their core business, where they are bleeding to the tune of $500-800 million per year on churn, and they’ll share savings from that with us. Early results are positive, and within 6 months, we should roll that out as a new product offering.”
Speaking to MediaNama after the call, Rao said that the Churn Management product is still being tested, and the company isn’t sure if it will generate the same type of results in non-VAS as it has in VAS. On the business model, Rao said that “If we can reduce the churn by X, we can put a number on that value, and say that we get paid either a flat licensing fee, or a percentage of the cost saving of that. It’s more than likely that there will be a licensing fee model.”
— AdRBT: has reached the next stage in deployment. The response on the AdRBT, being piloted with Vodafone, is 7%. According to Rao, “in most marketing response rates are typically 1-1.5%. We have almost 250,000 active users. The opportunity is that a small restaurant can come in through the web and place and ad which is played only to people in the neighbourhood, in the cell sites neighbouring that restaurant. That opens up a large market of local advertising.”
— SMS Search: “We have a large play coming up in messaging, in terms of P2A SMS, for search.If you send the term ‘Infosys’ via SMS, the response will be ‘what do you want to know? Stock Price, Latest News, Biography.’ It’s open ended search on SMS, and will have large implications.’
On TRAI Directive on Press STAR (*) to Copy
The new directive from the TRAI doesn’t require double confirmation. Uppal said that “as it gets implemented, and is rolled out in the next 30-45 days, we will be able to see a lesser impact than what we had said originally.” He said that there will be a recovery for those operators who had rolled out the most stringent version of that directive, and for those who didn’t there will be some dip in revenues.
Uppal also mentioned that the company is working on an improvement for the Press (*) to Copy: while it works fine within an operators network, there’s an issue with cross-operator mapping of songs, because the meta-data on the two content management systems don’t completely match today. OnMobile plans to use their speech recognition technology to help with the same.