In a significant move, the Telecom Commission in March 2016 allowed mobile virtual network operators (MVNOs) to enter the Indian telecom industry. Apart from enabling new players to enter the telecom market, the decision also opened up a potential revenue stream for the incumbent operators, who have made huge investments in infrastructure, spectrum and fibre over the years. They can now lease these assets to MVNOs, who will ensure wider reach and adoption, particularly in rural areas. Meanwhile, for relatively small operators, collaborating with MVNOs can be a key strategy to sustain themselves in a competitive market.

In a bid to provide statutory backing, the Department of Telecommunications (DoT) has released the guidelines for the grant of unified licences to MVNOs. The guidelines treat MVNOs as an extension of network service operators (NSOs) or telecom service providers (TSPs), while prohibiting them from installing equipment that interconnects with the network of other NSOs. An operator that wishes to provide telecom services by utilising the underlying network and/or access spectrum of an existing NSO will have to obtain a unified licence (MVNO).

Eligibility and entry conditions

The licence guidelines allow an Indian company registered under the Companies Act, 2013 to apply for MVNO authorisation for 12 services. These include unified licence (all services), access service, internet service (Category A with all-India jurisdiction), internet service (Category B with jurisdiction in a service area), internet ­service (Category C with jurisdiction in a secondary switching area), national long distance (NLD) service, international long distance (ILD) service, global mobile personal communication by satellite (GMPCS) service, public mobile radio trunking service (PMRTS), very small aperture terminal (VSAT), closed user group service, Indian national satellite system (INSAT) mobile satellite service (MSS) reporting service, and resale of international private leased circuit (IPLC) service.

As per the guidelines, only pan-Indian or service area-wise authorisations will be granted under an MVNO licence. The licence will be issued for a period of 10 years. Further, there would not be any restriction on the number of MVNO licensees per service area or the number of MVNOs parented by an NSO. MVNOs will be allowed to have agreements with more than one NSO for all services other than access services. In addition, NSO will not be mandated to provide time-bound access to its MVNO; the decision will depend on the mutual agreement between the NSO and the MVNO. However, DoT or the Telecom Regulatory Authority of India will have the right to intervene in the matter as and when required to protect the interests of consumers and the telecom sector.

The applicant will have to pay a one-time non-refundable fee for the authorisation of each service and service area. The same will have to be paid before signing the licence agreement and thereafter for each additional authorisation. The maximum amount of entry fee charged will be Rs 750 million. In addition to the entry fee, the licensee will have to pay an annual licence fee and spectrum usage charges as a specified percentage of the adjusted gross revenue (AGR) for each authorised service separately. Currently, the licence fee is 8 per cent of the AGR, inclusive of the universal service obligation levy, which is 5 per cent of the AGR.

Further, the applicant company shou­ld have a minimum net worth as prescribed by the government for the respective services and service areas on the date of the application. Any applicant seeking additional authorisation will have to meet the minimum cumulative net worth. The combined minimum net worth and paid-up equity will be limited to a maximum of Rs 100 million. The net worth of the promoters/equity shareholders will not be considered for determining the net worth of the company. With regard to equity holdings in other companies, the guidelines state that no one MVNO and another NSO (other than the MVNO’s parent NSO) and an MVNO and another MVNO in the same service area will have any beneficial interest in each other, directly or indirectly.

Meanwhile, an MVNO will have to bear the penalty for failure of subscriber verification norms for its own customers. Other penalties that are beyond the scope of MVNOs such as roll-out obligations and core network issues, will be borne by the NSO as per the existing norms.

Infrastructure deployment

Although no spectrum will be assigned to MVNOs, DoT has permitted them to set up their own network equipment including base transceiver stations, base station controllers, mobile switching centres, remote switching units, digital subscriber line access multiplexer and local area network switches. However, MVNOs would not be allowed to own/install core infrastructure equipment such as gateway mobile switching centres, soft switches and trunk automatic exchanges. The terms and conditions of infrastructure sharing between an NSO and MVNO will be based on mutually accepted terms and conditions.

Conclusion

The entry of MVNOs in the value chain will undoubtedly bring in efficiencies into the industry, as infrastructure sharing is an important aspect of this model. This will reduce service delivery costs, which will, in turn bring down prices for end-customers and enhance service adoption. Moreover, by offering customised packages, MVNOs will create more competition in the telecom market, which will lead to a further decline in tariffs.

However, it may not be smooth sailing for MVNOs in India. Industry experts are of the view that the decision to allow MVNOs to enter the market has come too late. The spectrum trading and sharing guidelines have already provided an avenue to small operators to monetise their unutilised assets. Besides, the spectrum crunch faced by most operators leaves little room for sharing bandwidth. Hence, it will be difficult for MVNOs to find a network partner. Further, the high entry cost and annual fee are other impediments that MVNOs are likely to face in the Indian market.

For MVNOs to be successful and profitable, they will have to ensure long-term lucrative agreements with TSPs, gain access to high speed data networks, and offer undifferentiated quality of service. On the services front, success will depend on the ability to offer value-added services and, therefore, the capacity to secure as much access as possible to network infrastructure. Moreover, since the country already has among the lowest voice and data charges with cut-throat price competition, the MVNO model will have to be more than just the traditional discounted-tariff model. The most successful MVNO’s would be those that are able to identify niche customer segments and implement targeted marketing strategies.

Puneet Kumar Arora