HOW TO START AND RUN A

MOBILE VALUE ADDED SERVICE (VAS)

IN NIGERIA

Version: 1.0 Date: January, 2017

Prepared By: Femi Alla

Kuiper Systems LTD

Email: femi@kuipersystems.com

Mobile: +234 8062756262, +234 8097096700

 TABLE OF CONTENT

1. INTRODUCTION 3

2. MARKET ANALYSIS 3

3. CURRENT INDUSTRY PRACTICES 4-5

4. HOW TO APPLY FOR A VAS LICENSE 6

5. THE REQUIRED TECHNOLOGY SETUP 7

Appendix/Sources 8

Market research sources 8

Receipt from NCC 9

Receipt from NCC 10

Letter from NCC 11

Other supporting documents (Dropbox folder) 12

- Example feasibility study submitted for license application

- MTN invoice for bulk SMS service charge

- Sample VAS software application with flow diagrams

INTRODUCTION
A mobile Value Added Service (VAS) is a telecommunications industry term that
refers to non-core telecommunications services, that is, all services apart from
standard voice calls. Generally, value-added services (VAS) add value to the
standard service offering, prompting subscribers to use their phone more and
allowing the mobile operator to drive up their average revenue per user or ARPU.
Some examples of VAS services could include the following: SMS-based news
subscription services from the mobile network, or mobile games offered by mobile
network operators.

As the mobile market matures in Nigeria, new regulations are being introduced to
further regulate the market. This report is drawn from my experience of designing
similar applications in the past and also the experience gained by leading a group
that had mobile value added services running the largest mobile network in Nigeria
and the experience of having to apply for Mobile Value Added Services license from
the Nigeria Communications Commission (NCC) when they introduced a new
requirement for such in 2013. This new requirement required all organizations with
services running on the mobile networks to have a VAS license to continue doing
so.

MARKET ANALYSIS
According to the Nigeria Communications Commission, Nigeria is estimated to have
reached 109% mobile phone penetration, with 153 million mobile phone subscribers.
Since many Nigerians own more than one SIM card, the actual number of unique
subscribers is lower. The Nigerian Communications Commission currently puts the
number of internet users in Nigeria at about 92.5 million with most internet users
connecting to the internet via their Smartphones. However, smartphone penetration
is put by a number of informed estimates at 12% and 30% with a high percentage of
the smartphone users concentrated in the Lagos area.

These show that SMS still remains an effective way to grant access to a service to a
large segment of the Nigerian mobile phone user.
CURRENT INDUSTRY PRACTICES

If a company approached one of the mobile networks in Nigeria with a proposal to

run a VAS service with the mobile network, in compliance with NCC regulations,
the mobile network will most likely advise the company to do one of the following:

I. Partner with one of the existing licensed mobile VAS operators, which
currently runs VAS services on their network.
II. Produce a valid VAS license issued by the NCC.

Usually, when running a VAS service with a mobile operator, there would be a
revenue share between the provider of the VAS service and the mobile operator. The
revenue share model varies between networks. For example, for a particular mobile
network, 60% of the revenues from a VAS service could go to the mobile operator,
while 40% goes to the VAS service provider.

In negotiating a partnership with an existing licensed VAS operator, the company

proposing to run the VAS service in partnership with the licensed VAS company
would have to make the partnership financially worthwhile for the licensed VAS
operator. This usually means that the licensed VAS operator would take a part of the
revenues being generated by the new VAS service. About 25% cut for the licensed
VAS operator from the revenues accruable to the company from the VAS service
could be considered a fair arrangement.

The difference between shared and dedicated short codes

Another point to note is the difference between a shared short code and a dedicated
short code. The use of shared short codes is more common with VAS providers. This
could become important if the company providing the VAS service opts to partner
with an existing licensed VAS company to launch an SMS based VAS service. The
licensed VAS company could use an existing short code which may currently be
running other services to run the proposed new VAS service. The various services
that run on the short code would be differentiated by keywords. For example, users
of a football focused VAS service may have to start their messages with football for
example. This will allow their platform recognize the incoming messages to that
short code which begin with football as intended for this new football-based VAS
service. The same short code could be running a chat service for example, and users
of that service would be advised to start the text messages they are sending to the
same short code with chat as the keyword to differentiate the text messages that
come in for the chat service.

When the company which wants to launch a VAS service in Nigeria eventually
obtains its license and is in negotiations with the mobile networks for a short code,
there is a good chance that different networks will issue different short codes for the
same service. It will take some further negotiations with the various networks to get
them to all issue the same short code for the service.

SMS broadcast by the mobile network.

It would be essential the company providing the VAS service in their negotiations
with the partnering mobile network to get the network to advertise the VAS service
to their subscribers. In these types of arrangements, the cost of this SMS broadcast
is usually taken out by the mobile network before the revenue share with the
partnering company is calculated and paid out by the mobile network to the
partnering company. One of such invoices from a mobile network has been included
with the supporting documents in this report.

Note that NCC also offers short codes and short codes can be obtained from the NCC
upon request.
HOW TO APPLY FOR A MOBILE VAS LICENSE

The class of license that most VAS services would fall into and have to apply for
will be Value Added Services license, under the category: Content Services using
Short Code. The NCC office is located in Abuja but there is also a liaison office
located in Lagos where application forms can be obtained and submitted. There is
an initial application fee of 26,000 Naira to obtain the forms (see NCC receipts in
the Appendix section and also among the supporting documents).
When submitting the application form, the following will be required:

500, 000 Naira application fee.

Tax Clearance Certificate
A feasibility report on the proposed VAS service
A contract with an existing mobile network

A newly registered company would not have issues with obtaining a tax clearance if
the time of registration of the company still falls within the time frame in which
newly registered companies are exempted from paying taxes in Nigeria.

The usual roadblock for companies seeking a VAS license is the requirement for the
submission of a contract between the company and a mobile network operator along
with the VAS license application. The mobile network operator will generally
require that the company possesses a valid VAS license before signing a contract
with them if they are interested in the VAS product.

The usual practice is to apply for the license with the help and guidance of someone
who works at the NCC.
THE REQUIRED TECHNOLOGY SET-UP
(For an SMS based VAS service)

This example provided would be for an SMS based VAS service, which is the most
prevalent kind of VAS service in Nigeria. The VAS service provider would not be
receiving text messages directly from the general public but the text messages will
be received by the mobile network(s) on the VAS service providers behalf,
Therefore the burden of provision of the physical infrastructure to handle the SMS
traffic will be borne by the mobile networks existing infrastructure designed to
handle such traffic.

Users of SMS based VAS services are usually advised to send an SMS to subscribe
to the service. This SMS would be sent to an advertised short code or a 5 digit
number. These types of 5 digit numbers are known in the telecom industry as short
codes. The mobile network will likely provide the VAS service provider with a URL
or IP address from where they will forward all text messages which the short code
receives to VAS service provider. The VAS service provider will be advised to
configure its servers or web application to receive the messages from this location
(URL or IP address).
The VAS providers web application will then take these forwarded messages,
process them and send back appropriate responses to the same URL or IP address
for onward forwarding to the original sender of the message.

The messages to be forwarded to the VAS service provider by the mobile network
are likely to come in the following format:

Variable Value

Msisdn Mobile number from the incoming

SMS.

Text The message part of the SMS.

Det Message details and timestamp.

APPENDIX / SOURCES
Market research sources
33% of mobile subscribers in Nigeria dispersed across only 5 states, FCT

https://techpoint.ng/2016/06/01/mobile-subscribers-nigeria-q1-2016/

Nigerian Communications Commission, Industry statistics

http://ncc.gov.ng/stakeholder/statistics-reports/industry-overview#view-graphs-tables-5

Lagos state has most active phones, internet users in Nigeria

http://technologytimes.ng/surveylagos-tops-number-of-internet-users-and-active-voice-
subscribers-in-nigeria/

Number of smartphones users in Nigeria from 2014 to 2019

https://www.statista.com/statistics/467187/forecast-of-smartphone-users-in-nigeria/

Smartphone penetration hits 30% in Nigeria

http://guardian.ng/business-services/smartphone-penetration-hits-30-in-nigeria/
OTHER SUPPORTING DOCUMENTS
Some supporting documents have been placed in two accompanying Dropbox
folder. The URL to this folder is: https://goo.gl/C3Rt3o

Sample VAS software application with flow diagrams and

VAS application sample documents

The folders contain copies of the letters and receipts already provided as part of this
document. They also contain

- Example feasibility study submitted for license application

- Invoice from mobile network for bulk SMS service charge

- Sample VAS software application with flow diagrams