With over 200 mobile virtual network operators (MVNOs) worldwide, the virtual service provider model is gaining popularity. Compared to mobile network operators (MNOs), MVNOs offer customers several advantages such as cheaper rates and innovative value-added services (VAS). It is only a matter of time before these virtual players start making their presence felt in the Indian telecom market. tele.net asks analysts for their views on MVNOs…
Why would a consumer opt for the services of an MVNO rather than an MNO?
Priyabrata Das: In most markets, MVNOs offer substantial benefits to consumers as compared to MNOs. As many MVNOs across the world compete on price, their entry in most markets has led to lower prices, free airtime as well as free services. Consumers also gain access to a wider variety of content services. The large number of distribution channels possible with MVNOs offers another advantage to the customer.In fact, in most MVNO markets, it is possible to buy a GSM subscription on the internet, at fast food outlets, restaurants and grocery stores.
Sourabh Kaushal: There are basically two types of MVNOs: discount and niche. Discount MVNOs provide services at a lower rate than the rest of the market, while niche MVNOs cater to niche segments (such as the youth and children). Niche MVNOs often charge a premium for specialised services.
Sridhar T. Pai: An MVNO comes in with a strong brand and buys minutes (IP/cellular/bandwidth) from regular cellular mobile service providers, MNOs or internet service providers (ISPs), to offer services in the market.
As an example, let’s say that a wellknown consumer brand like Bajaj in India decides to diversify and enhance its brand presence and gets into advanced telecom services for corporations in India. Bajaj could buy, say, a million bulk cellular minutes from a leading operator at a fraction of the regular price. Using its significant marketing clout (its franchisee points, consumer retail chain, etc.) the company could then offer a set of Bajajbranded prepaid cellular calling cards or international calling minutes.
Apart from the fact that it may be offering a better deal, the reason why a consumer might buy Bajaj calling cards is the brand association that the company commands, which would make it more easily recognisable than a new telecom operator, especially in rural markets.
The other reason why one would buy from an MVNO is that it may offer certain specialised value-added services that are not available with regular operators.
These come in the form of associated “brand gains”. For instance, IBP might give customers an IBP-branded calling card with 25 minutes of local calling with every 10 litres of petrol. Such offers would attract many customers.
Namrta Sudan: In contrast to traditional MNOs, which provide services for all the telecom segments, MVNOs focus mainly on specific customer segments with similar needs and interests. The strategy usually adopted by MVNOs is to make available their prepaid and/or postpaid plans at low prices. MNOs often find it difficult and challenging to succeed in all customer segments, whereas MVNOs are more focused on providing services to specific market segments such as the youth, senior citizens and discount customers. MVNOs can help MNOs to target customers with specialised service requirements. This may result in greater customer satisfaction.
MVNOs offer advanced and distinguished VAS, which are based on exploitation of their own intelligent network (IN) infrastructure. Through better market understanding, MVNOs are able to build their own identity through innovation, market penetration and content-based services. Owing to the fact that the services and applications provided by MVNOs are particularly developed for specific interests, customers may opt for the services of MVNOs over MNOs.
Mahesh Uppal: MVNOs offer competitive prices, localised and personalised services, and serve specific consumer segments more effectively. These features make MVNOs attractive to a wide range of consumers ?? from niche consumers to budget-conscious ones.
What benefits can MVNOs offer to Indian consumers?
Priyabrata Das: Major international MVNO players have reportedly expressed interest in India. The entry of MVNOs would expand the Indian market further, with significant growth possible in the prepaid segment, as witnessed in other countries. MVNOs also typically offer the flexibility of a mass-scale retail footprint and strong distribution networks to reach larger numbers of customers than ever before. In other major markets, MVNOs have leveraged their well-known brands and offered services geared for specific customer segments such as teenagers, students and ethnic groups, as well as design options to appeal to individual lifestyles, usage patterns or special interests. For example, Virgin Mobile, an MVNO in the UK, uses its market recognition and brand name to position itself for selling directly to, say, Virgin’s airline customers.
Sourabh Kaushal: MVNOs could bring in new services and applications that are currently not available to Indian consumers, especially after the launch of 3G in the country. They could also satisfy the unfulfilled needs of customer segments with specific requirements.
Sridhar T. Pai: MVNOs in India will have to do some significant innovation to beat the odds because there’s already intense competition in the market, and they would be entering fairly late. Since the ratio of prepaid customers in India is very large, and there is considerable churn among these users, MVNOs would target this segment first.
Hot billing, which involves audiovisual alerts for every rupee spent for a call in progress, would perhaps be a useful feature for MVNOs. There must be dozens of useful features such as local languages and SMSs.
Namrta Sudan: Global players can enter the Indian telecom sector as MVNOs through virtual networks. This would result in technological advancements, and the entry of global payers into the 3G mobile space in India. MVNOs may also offer wireless products tailored to suit the requirements of the end-user. MVNOs may provide mobile wireless value chains, m-commerce, and a variety of services at competitive prices that suit Indian telecom consumers in specific areas.
Mahesh Uppal: If other MVNO markets are anything to go by, the entry of MVNOs in India will lead to still cheaper services. They can offer more convenient and versatile billing, as well as service packages catering to specific communities, such as commuters, students and shopkeepers. The market will therefore grow even faster.
Would MVNOs be a good way to utilise spectrum efficientl?
Priyabrata Das: Besides expanding the existing customer reach, MVNOs will enhance profitability for MNOs by generating additional revenue from the use of unused bandwidth. By selling network capacity to one or several MVNOs, new subscribers and traffic can be brought into the network, significantly broadening the customer base and thereby enhancing the utilisation of spectrum.
Sourabh Kaushal: Many mobile operators have excess capacity (spectrum) which could be utilised by MVNOs. They can use this excess capacity to resell as voice and/or data services to customers, thereby enhancing the service provider’s productivity.
Sridhar T. Pai: MVNOs cannot improve spectrum efficiency in any manner. In fact, they typically do not own spectrum and network infrastructure, and are essentially specialised resellers of bulk minutes.
Namrta Sudan: The Indian telecom market has witnessed tremendous growth. Not only will MVNOs be able to stimulate current telecom market trends by offering varied products and services, they may also increase the profits arising out of additional revenues generated from the use of unused spectrum.However, it has been noticed that the demand for spectrum in the Indian telecommarket has overridden the supply. MVNOs do not have their own infrastructure and spectrum. Unless and until there is adequate spectrum for the existing MNOs, it would be difficult for MVNOs to launch their services satisfactorily.
Mahesh Uppal: MVNOs would undoubtedly be a good way to utilise spectrum efficiently. The spectrum crunch in India is real and severe. MVNOs have an incentive to extract the last drop of value from their spectrum since they do not own it but, typically, lease it from a network operator.
What is the Department of Telecommunications (DoT)’s view on MVNOs in India?
Priyabrata Das: Most regulating bodies worldwide are in favour of MVNOs as a means of encouraging competition, which may ultimately lead to greater choice for customers, and lower prices. While the MVNO issue is being hotly debated at all possible telecom forums, MVNOs are not yet permitted in India. In fact, some industry watchers believe that MVNOs may not suit the Indian telecom market in view of the constantly reducing tariffs, falling average revenue per user (ARPU) and low margins.
Sourabh Kaushal: DoT is currently not in favour of allowing MVNOs in India as it believes that the tariffs in India are already among the lowest in the world. It is also of the opinion that the penetration in the country is still very low, and what is needed is facility-based service providers rather than MVNOs.
Sridhar T. Pai: I am not sure about DoT’s view in this matter. Right now I guess the spectrum issue has taken up all of DoT’s “bandwidth”.
Namrta Sudan: DoT is not particularly inclined towards the entry of MVNOs in the Indian telecom sector. This is because telecom tariffs and teledensity are already low, and the Indian telecom market needs facility-based telecom service providers rather than virtual operators. Further, the shortage of spectrum in the Indian telecom sector is a major concern as it will hamper the growth of MVNOs at a sustained level. However, DoT is reconsidering its decision regarding the entry of MVNOs in India.
Mahesh Uppal: MVNO service is a type of resale. DoT has opposed other resellers of mobile and fixed services, fearing market abuse by players not directly licensed by it. Such fears have been proved baseless in most competitive markets. DoT must review its position.
What is the international scenario with respect to MVNOs?
Priyabrata Das: MVNO penetration is extremely low in the Asia-Pacific, compared to Europe and North America. Hong Kong has 6-10 per cent MVNO penetration, while Australia has 3-4 per cent.
Tariffs are generally lower in Asia, implying intensely competitive markets.
However, an interesting development witnessed in most MVNO markets is the reduction in tariffs, not just in Asia but also in high teledensity Europe. In Finland, after the entry of MVNOs, not only did all the three incumbent MNOs have to lower their prices, they also had to subsidise their subscriptions with free airtime.
Most Asian operators generally have a strong brand presence in their respective countries, which makes it difficult for new MVNOs to enter the market. Evolved market operators, particularly in northern Asia, already have tailor-made marketing schemes, thus effectively pre-empting MVNOs from these niche segments.
Sourabh Kaushal: There are more than 200 MVNOs operational globally, most of them in Western Europe and the US. Many more are planning to begin operations. It has been observed that the success rate for MVNOs is high in Western Europe and the US, whereas it is considerably low in other regions such as the Asia-Pacific. The success in Western Europe could be attributed to the unfulfilled needs of these consumers.
Sridhar T. Pai: MVNOs have progressed to a certain extent in countries like the US, and parts of Europe. But there has not been any dramatic success anywhere. The scenario appears to be mixed.
Namrta Sudan: Many countries are considering the implementation of the concept of MVNOs. The concept of MVNOs is that they would not have a licence to use radio spectrum but may be able to use the radio networks of one or more of the MNOs.
The Hong Kong regulator is considering implementing the concept of separating service provision from network operations for 3G services. This means that even though a service provider need not be the network operator, at the same time, a network operator would not be precluded from acting as a service provider. Recently, there has been renewed interest regarding the introduction of MVNOs in European countries such as the UK, Denmark, Finland, Norway and Sweden.
Mahesh Uppal: There are scores of MVNOs the world over. Europe is most widely covered. Australia and the US too have several operators. Few regulators doubt that MNVOs increase consumer value.
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