Increasing VAS revenues: Africa’s unique challenges in 2010

As fixed price bundling of voice and data becomes the norm worldwide, ARPU rates for voice calls and peer-to-peer messaging have gone into decline.

Mobile operators have come to rely more and more on Value Added Services for a stable source of revenue with the result that the VAS now represents a greater proportion of revenue for many MNOs.
The market conditions behind this drive for VAS revenues do not necessarily apply in most African networks today and, certainly, the uptake of VAS services in Africa has been slower than elsewhere. Disposable income and local relevance are the key factors in determining whether mobile subscribers are willing to pay a premium for infotainment, news, video-download, or market-information services.
However, in many ways, Africa confounds the predictions of mobile analysts. ARPU rates in some of the poorest countries are the equivalent of some of the richest. Penetration rates are generally very low but in some countries are above 90 per cent. Some countries have a single national language while in others there may hundreds. Literacy rates vary greatly between countries and between urban and rural segments within those countries, all of which affects the uptake of some services.
The VAS service models that have succeeded globally may work in the more mature African markets, e.g. South Africa, Egypt, Algeria, Morocco, Nigeria, Sudan and Kenya. Mobile network operators (MNOs) in these markets are making their first forays into 3G networks and services, and although the initial uptake of 3G devices remains extremely low, WAP browsing and mobile Internet are already generating revenues.
In most other African countries, per capita income is much lower and the bulk of network and device technology remains 2G. Overall network revenues are growing through acquisition of new subscribers from more remote rural areas but these typically represent a lower-ARPU segment. The uptake, among rural subscribers, of subscription-based or premium-rate VAS services, for example, where the subscriber pays for the service on their phone bill, is low. Exceptions have been religion-based services, such as ‘prayer reminder’ and ‘prayer-of-the-day’, and local market information services, e.g. reporting of local fish, grain and livestock prices.

A different model
African networks, nevertheless, lead the world in VAS services where the payment model is different. For example, since its launch in 2007 the M-Pesa mobile payments service in Kenya has attracted over 6.3 million registered users, representing 46 per cent of Safaricom’s subscriber base. In the case of mobile payment and mobile banking services, the messages sent to and from subscribers are free but the bank, or remittance agency, charges a fee for transactions and shares a portion of the revenue with the MNO. With this model, operators use messaging to boost revenues without charging subscribers for the individual messages used in transactions. They open up a new revenue stream and help subscribers become accustomed to interacting with applications.

A hidden gem
USSD, a service described by MTN as, “the Hidden Gem in the mobile network”, has received a new lease of life in African markets. The service requires no special investment on the part of the operator or the subscriber as it is a standard teleservice in every GSM network and supported by all 2G devices. USSD services are cheap to implement, immediate, interactive and hugely popular. Unlike SMS, USSD services are session-based, so application responses are immediate, which empowers the user and makes USSD ideal for mobile banking services such as FNB’s in Botswana.
USSD can be used to present a numeric, menu-browsing experience to subscribers through which they can navigate to specific services and ‘discover’ new ones as the operator adds them to the menus. The service can be used to provision the often complex configuration details for WAP browsing and MMS, easing the launch of those services in the long term. Many operators, such as Orange Cameroon, not only roll out financial services on USSD but provide free access services for their prepaid users to query and top-up their balances, as well as to transfer balances to other users. So, although the USSD session does not provide revenue, it enables services that do. The control USSD provides over access and costs makes it ideal for customer self-care solutions, especially for the prepaid users who make up 95% of all African subscribers.

The value-add of mobile advertising
Mobile advertising presents the MNO with another opportunity to generate revenue through reconciliation with 3rd parties, rather than charging the recipient. Various models can be used to deliver mobile advertising campaigns, from Bulk SMS or MMS, to insertion of targeted promotional messages into MT (mobile terminated) SMS messages or USSD responses. Typically, messages from the operator’s own free services (Balance Enquiry responses or Please Call Me messages) are harnessed for this purpose and the agency or brand is charged per impression. Targeted campaigns that select subscribers based on a demographic profile command the highest revenues.

Africa is not just one market. It can be segmented into several markets each of which has different requirements and environments for messaging-based VAS services. Multiple language groups, varying levels of literacy, low per-capita incomes all present barriers to the delivery and uptake of VAS services. However, this creates an impetus for localised services and for location-based services. SMS and USSD services can identify the location of the subscriber to the nearest cell and customise their responses accordingly for weather, traffic updates, market prices or news. Language can also be determined through user selections in a USSD portal and used to retrieve information in the correct language. The disparate markets of Africa present the widest range of opportunities for MNOs to generate revenues from VAS of all kinds.

John Hurley, Senior Product Manager, Jinny Software

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