Two things made me take the final decision in going ahead with this piece, and they are totally disconnected from each other. The first is the encouraging news that, according to a Merrill Lynch study, Indian telecom companies are world leaders in profitability, returning higher operating profit than most of their European, US and Japanese counterparts.

The second is a tactical acceptance of David Ricardo�s theory of comparative advantage.

The first piece of hard news, I hope, would help loosen the purse strings of the telecom operators and probably make them look at mobile value-added service (VAS) providers in a more benevolent light. The second, Ricardo�s theory will give me the freedom to write about a topic on which I am not an authority and absolve me of all the glaring mistakes. Because those who are authorities on this topic are doing what they do best � like the proverbial Pedro milking the bull in some hope of making millions.

So, are the numerous small and medium sized companies providing various mobile entertainment services to the potential 200 million telecom users caught between the rock and the hard place?

There are several strong reasons to believe so. First, of course, is the relative size of a telecom company and a mobile VAS player � the story of David and Goliath immediately springs to mind. Second, is the rather lopsided revenue share between the telecoms and the VAS companies. Third, really, is the lack of any cogent system governing the relationship between the two parties whereby each VAS player has to negotiate deals separately with each of the telecoms. Fourth, even when the deal has been struck, remains the issue of monthly MIS (management information systems) which is determined solely by the telecoms and, perhaps, finally, is the payment cycle regarding which much remains to be desired.

If this is the rock side of the story, then there is also a �hard place� side of the story for the mobile entertainment service providers � the IPR holders. The good news here is that mobile VAS is clearly driving the entertainment industry. So far as music is concerned, it is common knowledge that a music sale for the mobile platform has outstripped the sales of CDs and cassettes in India. But the not-so good news is that mobile VAS players have to pay for the rights in advance, a practice which acts as a deterrent to new players.

Who is responsible for this plight of the mobile VAS companies? The story becomes slightly more complicated here. At first glance, the finger of accusation points to the telecoms and to some extent the IPR holders. But there is another side of the story as well, which is slightly more sordid � as they say, you get as good as you give.

If one were to be true to the facts, a part of the blame must be shared by the mobile VAS players themselves. Sounds ironic? Yes, indeed it does. The mobile VAS players more often than not follow the degenerate French monarch Louis XIV�s dictum �after me the deluge�. It is therefore not surprising that undercutting, gross violation of IPR, minimum guarantee are as popular in the business as are A.R. Rahman RBTs!

Is there a solution? Of course, there is. �The market forces will sort it out in the next 12 to 18 months� as someone with unusually deep pockets and good contacts with the telecoms and the IPR holders is most likely to tell you. But my guess is that market forces will not solve the problems, it would rather hardcode the loose and harmful practices that are there by putting entry barriers against new entrants.

Should the government then intervene? That perhaps may have an initial positive impact, but in the long run it is even worse than market forces. Simply because the aim of the government would be to bring down end consumer prices with little consideration for what happens to either VAS players or telecoms. Could the mobile VAS players get together and take collective action by making the telecoms accept some standard practices and agree among themselves to look at collective interests of the industry?

Looks like a remote possibility now since no one is ready to put their money where their mouths are. But that seems the only likely way forward. After all, David did successfully take on Goliath.

(Views expressed are personal and not necessarily those of IAMAI)