In a move that is expected to stir up competition in the Indian telecom industry, the government has allowed the entry of mobile virtual network operators (MVNOs). These operators do not have telecom licences, infrastructure or spectrum. They buy airtime in bulk from a licensed mobile network operator (MNO) and offer services under their own brand names. The billing is done under the MVNO’s brand.
In more mature telecom markets of the world, MVNOs are fairly common. The first commercially successful MVNO in the UK, for instance, was Virgin Mobile, which launched its services in 1999 and has over 4 million users now. Currently, there are 360 MVNOs in service in the world.
In India, while the Department of Telecommunications (DoT) is yet to finalise detailed MVNO guidelines, it has broadly accepted the Telecom Regulatory Authority of India’s (TRAI) recommendations on introducing MVNO licensees. It was awaiting clarifications on some issues from TRAI, before drafting the policy.
In 2008, differences had cropped up between DoT and TRAI on the issue of the number of mobile companies an MVNO can enter into a contract with in a particular telecom circle. The issue arose shortly after Reliance Global acquired 100 per cent stake in Vanco, a UK-based MVNO, for $76.9 million. Reliance indicated that it was interested in offering MVNO services and was approached by several operators for the same. However, while TRAI wanted that an MVNO should be attached to only one mobile company in a circle, DoT did not want any such restrictions.
The stand-off intensified in March this year, when TRAI refused to endorse the decision of allowing MVNOs to tie up with more than one operator in an area. Its recommendations also stated, “MVNO(s) cannot have any spectrum allotment. The payment of spectrum charges by the MVNO should not establish any right at a later date. This aspect may be legally examined.”
However, the differences have since been ironed out in the interest of pushing ahead with the MVNO policy guidelines, and DoT has agreed to go along with TRAI’s views.
Market analysts and operators are happy with DoT’s decision as it removes a big entry barrier for asset-light companies. Due to scarcity of spectrum in the country, MVNOs could offer an easy route for international telecom companies to enter India, rather than going in for costly acquisitions or bidding for 3G.
Global telecom operators including Telekom Malaysia, Mobile ESPN and ValueFirst have shown interest in the Indian MVNO space. Verizon Wireless and France Telecom have, in fact, approached TRAI to open up this segment to foreign players.
Meanwhile, Virgin Mobile is already reselling Tata’s airtime in India and can now aspire to legally become an MVNO. Also, for new entrants with licences in only a few circles, the MVNO model would be useful to expand their presence across the country.
Analysts, however, are circumspect especially in light of the global economic slowdown. They do not expect an immediate flurry of interest or new investments. At best, the model would be useful for firms operating in developed markets to check the real opportunities available in the Indian market. Besides, as telecom analyst and director, ComFirst, Mahesh Uppal points out, “MVNOs will have a restrictive licence. I do not, therefore, see it as something that will give enough confidence to existing operators or to the MVNO itself.”
In August 2008, TRAI recommended a foreign holding cap of 74 per cent for MVNOs, in line with other telecom services. Mobile operators would be free to lease spectrum to as many MVNOs as they wanted, but MVNOs would have to pay about Rs 1.5 billion ($30.2 million) for a nationwide entry licence, and an annual licence fee, which would be the same as that of mobile operators.
The Telecom Commission has decided to peg the entry fee at a maximum of Rs 850 million as licence fee for MVNOs to operate across the country. The maximum entry fee for the metro and Category A circles is likely to be fixed at Rs 50 million, for Category B circles at Rs 30 million and for Category C circles at Rs 10 million. The commission is also looking at a floor price of Rs 10 million for metros and Category A circles, Rs 5 million for Category B circles and Rs 2.5 million for Category C circles.
As a policy, this is a step forward for the telecom industry, one that may result in a further drop in tariffs. With the entry of MVNOs, the telecom industry can look forward to some innovative marketing moves.
