Wednesday, August 29, 2007

IPOs, M& A in mobile value-added services

The entry of investors such as Goldman Sachs and Lehman Brothers in a relatively nascent space, such as mobile VAS, is also evidence of the sector maturing

Two mobile value-added services (VAS) start-ups—New Delhi-based Cellebrum.Com Pvt. Ltd and Bangalore-based OnMobile Global Ltd—are slated to go public this fiscal. The proposed initial public offerings (IPOs) signal the maturing of the mobile VAS industry, the highest funded start-up segment in the past two years, with more than $150 million in funding.

OnMobile and Cellebrum, along with peers such as One97 Communications (P) Ltd and Bharti Telesoft Ltd, have also lined up acquisitions during the year, which will lead to what could be dubbed the first phase of consolidation in a barely seven-year-old industry.
As this consolidation plays out over the next 12-18 months, the industry is expected to align along two clear lines—large, multi-services players and the next generation of niche start-ups.
The industry’s fast-track evolution is riding on the back of the country’s exploding mobile subscriber base—up from 108 million in July 2006 to 193 million now. Revenues from mobile VAS were Rs2,850 crore in 2006 and are projected to touch Rs4,650 crore this year-end. This includes revenues earned by VAS companies and telecom services operators, who share the revenue.
“At this stage, large players are looking to grow larger. Part of the capital raised through the IPO will fund acquisitions in the data space,” said Arvind Rao, CEO, OnMobile. Until three years ago, the Infosys Technologies Ltd-incubated start-up was chiefly focused on voice-based service offerings, such as interactive voice customer care and ringtones for telecom operators. Since then, it has diversified into data and is keen on next-generation applications, such as advertising and social networking. It has already pushed through one acquisition—ITFinity Solutions Pvt. Ltd last December—after it received $27.8 million in third-round funding from Deutsche Bank, Goldman Sachs and Polygon Investment Partners.

MOBILE VAS NICHE START-UP DEALS
Peer Cellebrum, backed by New Delhi-based MCorpGlobal, got $15 million as first- round funding from Lehman Brothers around the same time. “We are looking at acquisitions both in India and overseas,” said Saket Agarwal, COO, Cellebrum. It set up an incubation cell last year in which it seeded mobile social networking company MobiSoc.
A multi-services offering would imply a combination of managed platform services across voice, WAP (wireless access protocol, a way to access the Internet through mobile phones) and SMS (short messaging services), content development and syndication, mobile data and voice applications, and enterprise mobile solutions. Not all companies in this space currently offer all services. Even early movers such as OnMobile have chosen to stay out of content. Other players in the space include IMI Mobile Ltd, Mobile2win India Pvt. Ltd and People Infocom Pvt. Ltd (which operates under the brand name Mauj).
As the country’s mobile subscriber base continues to explode, telecom operators have begun to prefer a few mobile VAS players who can offer the full gamut of services. “Players are encroaching into each other’s areas to expand their offerings,” said Vijay Shekar Sharma, founder and CEO, One97 Communications. The company has mandated an investment banker to keep an eye on firms in mobile advertising, utilities, content and mobile commerce.

Revenue models are also changing. Earlier, players would charge a one-time fee to build a WAP or voice platform for the operator (telco), and charge a regular maintenance fee. However, that is changing into a revenue-share model, where the mobile VAS player collects a portion of the user-generated fee per download or transaction. Revenue share remains a bone of contention between the operator and the VAS player, as the former keeps the majority share, often 60% to 80%. VAS firms, though, hope this will change as the industry matures, as it has in other evolved mobile markets.

The entry of investors such as Goldman Sachs and Lehman Brothers in a relatively nascent space, such as mobile VAS, is also evidence of the sector maturing. Both are later stage, private equity investors and, significantly, have been marked for their pre-IPO deals in this market. “It is good for the industry to have exits through IPOs, as it sets a benchmark for those to follow,” said Sandeep Singhal, director, Nexus India Capital, which has invested in two mobile VAS start-ups—Mobile2win and Kirusa Inc. Most venture capitalists (VCs) active in the space seem to think that the funding cycle for multi-services players has ended. “We are now seeing companies in the next generation of applications,” said Kanwaljit Singh, managing director, Helion Venture Partners.

By: Namitha Jagadeesh; Source: August 28, 2007



2 comments:

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