VAS to push telcos growth as mobile penetration slows

With mobile penetration reaching saturation point, and as profit margins on voice calls and SMS (Short Messaging Service) taper off, value added services (VAS) is expected to drive continued revenue growth for telecommunications companies this year, riding on the back of rising smartphone acquisition, and sustained efforts by government to enhance broadband availability, industry observers have said.

According to the Nigerian Communications Commission (NCC), there are about 130 million active mobile subscribers, out of a population of 170 million people. The National Broadband Council is pushing for increased 3G (Third Generation) coverage to 50 percent of the Nigerian population this year.

The number of smartphone users is expected to increase to more than 35 million in 2017 from 5.6 million at the end of 2012, according to Research Company, Informa Telecoms & Media.

“The mobile VAS sector has witnessed enormous growth in recent times because telecoms companies no longer rely solely on voice services for revenues”, said Ugo Okoye, chief executive officer (CEO), iConcept Limited, a local VAS provider. According to him, when the Mobile Networks Operators (MNOs) rolled out communications services in 2001, over 99 percent of their service revenues were derived from voice dominated services.

“That has slowly declined year-on-year (YoY). Currently, mobile VAS contributes about 10 percent of operators’ revenue,” said Okoye in an interview with BusinessDay.

In 2014, BusinessDay gathered that non-voice revenues, including VAS, data, enterprise business and digital service, contributed approximately 20 percent to MTN Nigeria’s total revenues.

Read also: Hostile bank lobby, telcos’ apathy stall mobile money growth

“In 2015, we intend to grow these new revenue streams. The future of the Information Communications Technology (ICT) industry is digital services with the evolution of technology and convergence”, said Funmi Onajide, general manager, corporate affairs, MTN, in an interview with BusinessDay.

“Voice is now viewed as the most basic service and it has become commoditised. Digital services are the new growth area and the battle ground for competition,” she added. BusinessDay investigations however show that some telecoms operators are already witnessing tremendous growth in subscriber numbers due to the introduction and innovative value added services.

When Globacom, the country’s national carrier, launched a whole new range of VAS in April 2014, building on an already rich mobile content portfolio, market analysts viewed it as an effort to encourage greater usage of data services, in order to boost ARPUs (Average Revenue Per User) and reduce churn following its drop into third market position behind Airtel in the first quarter of 2014.

Since then, Globacom has been upgrading its 3G coverage, from 43 percent to 90 percent of its entire network in order to provide the needed capacity to provide sophisticated VAS offerings.

These investments, according to market observers, were perhaps the determining factor behind the telecoms firm’s impressive subscriptions growth rate during the three months to June 2014. Other telecoms operators are also towing the same line.

This month, MTN, the nation’s largest telecoms operators, with 60 million mobile subscribers, said, it is engaging in a full scale incursion into the digital business landscape.

Low-end smartphones are increasingly available and these types of mobile phones will likely grow at a CAGR (Compound Annual Growth Rate) of 15 percent over the coming years, according to market observers.

“With more smartphones in the hands of more Nigerians, there would be greater innovation with regards to creating new and better content services that everybody can use,” said Okoye in an interview with BusinessDay. According to him, the mobile VAS sector has witnessed enormous growth in recent times because MNOs no longer rely solely on voice services for revenues

Market observers are of the view that increasing adoption of smartphones and tablets PCs is enhancing the demand for and use of mobile VAS. This growth, according to them, will continue over the years, as local content developers, MNOs, the regulator, and other stakeholders jostle to expand the scope of the market.

Paul Lee, director, global TMT research leader for Deloitte, said, in an interview that the widespread adoption and usage of instant messaging services (MIM) from Over-the-Top (OTT) providers like Whatsapp, Viber, Facebook, and BBM, is an indication that communication no longer occurs exclusively on voice, especially amongst the nation’s vibrant youth population.

“The telecoms operators have seen that smartphone penetration is on the rise and data services are the future.  So, MNOs have to create a lot more VAS services such as mobile apps and content services.

“That’s the only way they can find the right balance in their revenue stream,” said the iConcept CEO. Market observers say mobile VAS will become a sizzling growth ticket for telecoms operators, opening up new revenue streams over the next decade.

“We are aggressively working with the original equipment manufacturers (OEMs) to push smartphones into the hands of Nigerians”, said Osondu Nwokoro, director, regulatory affairs, Airtel Nigeria.

“VAS, content and applications drive broadband usage. So, we are supporting local content development by providing sponsorships to app and content developers,” he added.

There are over 50 companies in Nigeria’s budding mobile VAS market, according to available data. The list of content providers and platforms are growing by the day. Some of the major providers include, MTech, Cellcast, TaviaTxt, SaveMyContacts, Cellulant, CellTrust, among others.

Ben Uzor