In a win-win move for both sides, Tata Teleservices Limited (TTSL) and UKbased Virgin Mobile recently signed an exclusive franchise pact that would allow TTSL to sell part of its services under the Virgin brand. Starting April, TTSL will offer two brands: Tata Indicom for the mass market and Virgin for the youth market. Under the deal, TTSL will pay a preagreed fee to Virgin for every user buying the service.
The Virgin Group, which already has a presence in the country through Virgin Atlantic airline is looking to play a significant role in the country’s booming telecom sector. Virgin’s non-conformist, billionaire Founder Chairman Sir Richard Branson, at the time of signing the agreement, indicated that the company is looking at a subscriber target of about 5 million and a revenue target of Rs 350 billion by 2010.
However, the arrangement has already run into controversy with GSM operators, through the Cellular Operators Association of India (COAI) contesting the partnership and claiming that it would amount to Virgin entering India as a mobile virtual network operator (MVNO) in a disguised manner.
Virgin Mobile is actually the world’s first MVNO which does not maintain its own network and instead has contracts to use the existing networks of other providers to offer services under the Virgin brand. It is currently present in six countries ?? the US, the UK, France, South Africa, Australia and Canada. In each of its businesses, it functions as an independent entity, though usually in partnership with another local company which provides the network infrastructure.
In India, since MVNOs are not yet permitted, Virgin specifically worked out an arrangement that would make it an agent of TTSL, and Virgin Mobile-branded services would be provided over TTSL’s network.
However, with COAI questioning the franchise agreement and pointing to a possible breach of regulations, the Department of Telecommunications (DoT) has had to step in. After examining the legal and regulatory issues involved, DoT has said that it is willing to allow Virgin Mobile to operate in India. It has also stated that the Tata-Virgin service can proceed for commercial launch. However, it has asked Virgin to clarify certain issues raised by other operators.
Meanwhile, the Tatas have pointed out that since there is no selling of bulk airtime, Virgin cannot be classified as an MVNO. Defending its partnership with Virgin Mobile, TTSL Managing Director Anil Sardana noted, “The tie-up for Virgin Mobile-branded services is all above board and completely in compliance with the laws and regulations of this country. The company had received a communication from DoT seeking clarifications, which have been addressed.” He further added, “The tie-up is only for using the Virgin brand on an exclusive basis to expand into segmented sections. The network belongs to TTSL. The billing will be done by us and the revenues too will come to us.”
If all goes as planned, services under the Virgin brand should be launched as early as April 2008. The Virgin Mobile brand will target customers aged 15 years to 30 years, Branson stated. The company is also planning to sell six handset models, costing Rs 2,000-Rs 5,000, in India.
Without giving out any figures, Branson grandly announced that the company would “make the highest investment ever in India”. He promised a whole new experience for Indian youth, and further stated that more than 250 Virgin Mobile employees had been researching in India to deliver country-specific value-added services, which may be subsequently incorporated in other countries where Virgin Mobile operates.
Meanwhile, the company will bring 10 firsts to the Indian telecom market, including a secret inbuilt password enabling users to save some of their personal messages.
The only spanner in the works that analysts foresee is the fact that the Virgin Group also has a technical and consultancy services agreement with Essar Telecom Retail, the retail venture of the Ruias. Under this agreement, Virgin provides its expertise in the areas of branding, marketing, customer care, store operations and staff training to Essar’s Mobile Store. But TTSL is not unduly concerned. According to its officials, the two arrangements are different and exclusive in nature.
These troubles notwithstanding, for the Virgin Group, it makes good business sense to get a substantial share of subscribers from the world’s fastest growing telecom market ?? especially when growth in the UK, the US and other markets has already started to flatten.
