While the Tata-Virgin tie-up has received government clearance, it has triggered a fresh debate on whether or not mobile virtual network operators (MVNOs) should be allowed in the country. While the government seems to be in favour of allowing MVNOs in, some operators disagree. Meanwhile, the Department of Telecommunications (DoT) has asked the Telecom Regulatory Authority of India (TRAI) to come out with recommendations on the subject. tele.net asked industry associations and analysts for their views on MVNO prospects in India and the international experience…
How will the entry of MVNOs or similar models impact the Indian telecom industry?
Abhishek Kapur: The Indian market is a conglomeration of circles. Mature circles like Delhi and Mumbai are likely to see a lot of MVNO activity if it is permitted. MVNOs come in at a time when there is a serious need for segmentation and targeting of customers.Their entry will impact the telecom space. People with different service needs will tend to choose one or the other of the options offered by these MVNOs. For example, all big pan-Indian operators currently have the same brand associated with a wide variety and class of customers across the country. They don’t have brand segregation either on the basis of income or age. Through MVNOs, most of them will tend to create a niche market. For example, though not technically an MVNO yet, Virgin Mobile is targeting the youth.
Usha Rajeev: The entry of MVNOs will lead to market expansion and will foster growth. It is also likely to increase churn levels as customers will have a wider choice. Large global MVNOs with aspirational brands or local aspirational brands in non-telecom sectors with marketing strengths are expected to bring in significant innovation in positioning of telecom services. Just as multibranded and co-branded credit cards have flooded the Indian market, there is likely to be a similar explosion in the initial period in the telecom space, leading eventually to consolidation.
With increased market touch-points, MVNOs are expected to better utilise the idle capacity in B and C category circles.A fall in tariffs is also likely in the initial periods as part of the market entry strategy.
T.V. Ramachandran: The MVNO model came into being in mature markets where the average number of mobile operators is three or four. Such a market has good penetration and high ARPUs of more than $40-$50. In this kind of an environment, where the network operator has surplus capacity, there was a conscious requirement for MVNOs to help growthe market through innovative and competitive models.
It is conventional wisdom that MVNOs are not good for emerging markets since such markets are not well penetrated, the operators’ networks are not expanded enough, there is a shortage of capacity and ARPUs are low. Since India falls into the latter model ?? it has neither surplus capacity nor good penetration nor high ARPUs ?? it has been said that we are not yet ready for MVNOs.
Prashant Singhal: An MVNO is a service provider who does not have any spectrum allocation or radio network infrastructure but purchases wholesale airtime from a traditional wireless network to market its own branded service to end-users. Considering that an MVNO arrangement involves selling of airtime to virtual operators by regular mobile network operators, the entry of MVNOs has become a point of debate.
On the one hand, if the government permits MVNOs to operate, it will enable asset-light companies to set up shop in theworld’s fastest growing mobile market. It will boost handset sales and will add efficiency to the rollout plans of new licensees who can then better utilise their capacity and enter service circles for which they do not have licences. The mobile market will see more bundling of handsets, with operators looking to tap niche markets. It will also lead to improved sales volumes for high-end product categories like music phones and internet-enabled phones. Mobile network operators could optimally utilise active infrastructure by sharing radio equipment, antennae, feeders and radio frequency. MVNOs would lead to greater competition and better quality of services for users as well as bring about more innovation and diversity in services.
However, critics point out that MVNOs are not conducive to emerging markets. They will increase market competition, thereby discouraging operators’ investments in booming markets. The entry of MVNOs could also lead to largescale trading of spectrum among operators.
How successfully has this business model been implemented internationally?
Abhishek Kapur: There are different scenarios in different markets and there is a lot of scepticism regarding MVNOs. It is something like IPTV ?? nobody is sure whether it will work out or not. But the model demonstrates value and has had big successes in several countries. The whole concept of MVNOs is that they try to increase ARPUs through branding. Some of them tend to favour data and are called data MVNOs while some are plain voice-based ones. As far as data MVNOs are concerned, only depth of content or brand is not enough for success. The jury is still not out on whether MVNOs are going to succeed. It all depends on market dynamics, suitability of the launch and the content strength. For instance, while Virgin Mobile is not an MVNO, its offering of Re 0.10 for every incoming call is unique. Such value propositions will decide market changes.
Usha Rajeev: Globally, there are over 300 MVNOs whose experiences vary across countries.While the European market has seen better offtake and sustainability with the MVNO model, the performance has also been good in the US.
T.V. Ramachandran: Globally, the model has been doing well. It all started with mature markets such as the UK and South Africa, where it succeeded since existing carriers or operators were looking to utilise their surplus capacity.
Prashant Singhal: MVNOs have gained a lot of traction in Europe over the past few years. A number of players have established businesses, with UK’s Virgin Mobile being the most well known. In contrast, on the other side of the world, the MVNO market development is not as visible.
In Asia, most activity is seen in a few liberalised markets such as Hong Kong, Taiwan and Australia. Hong Kong is, to date, the highest MVNO-penetrated Asian market with 720,000 customers, representing 7.5 per cent market penetration.
The limited activity in Asia may be due to regulatory policies which are not supportive of network access. However, change is happening. In 2006, MVNOs started to show interest in two of the most highly penetrated markets ?? Singapore (Smart) and Taiwan (Aurora). In 2007, this trend spread across more markets such as South Korea, Japan, Malaysia and Thailand.
Which segments of the telecom market can MVNOs expect to tap and what is likely to be the revenue potential from them?
Abhishek Kapur: Value-added services (VAS), the youth and data are the three main segments that MVNOs should focus on in India. The revenue potential here is very different from American or British markets, and one cannot really draw experiences from success stories there. In terms of revenue potential, we can put MVNOs in the same class as VAS companies today. So, if one is expecting a huge growth in VAS companies, the same can be expected with MVNOs as well.
Usha Rajeev: MVNOs are likely to tap both existing and new customers. The strategy would be a niche or differently positioned offering. It may be tailored to a local geographical market with add-on services. An example would be a Delhi University North Campus card which students could use to get preferential access to certain hotspots/restaurants in that area. To be successful, an MVNO offering must be extremely focused on niche local markets with differential pricing points. The revenue potential could be significant in both low and high density markets but would depend on commercial arrangements between the MVNO and the operator.
T.V. Ramachandran: In a market like India, there is not enough capacity while there is already enough competition. This is unlike the situation overseas, where competition had to be actually enhanced by letting multiple MVNOs come into the market to offer more choice to the consumer. The Indian model will, therefore, have to be different, if MVNOs have to work here. Somebody will have to innovate it ?? though not in the conventional way as has been done in the mature markets.
In India, the consumer is very price sensitive. For the MVNO model to work here, it will have to address this issue without adding to the cost. For instance, Virgin Mobile wants to do something like that by saying it wants to address the youth segment here. This is an innovative initiative. However, various models need to be tried out and it is difficult to predict what can be sustained and what cannot be. The customer is always the surprise at the end of the day, world over. So, what will work in India and how quickly it will take off is very difficult to predict.
Prashant Singhal: Depending on regulatory and geographic advantages, MVNOs could tap a range of segments. In advanced data-centric markets like South Korea and Japan, MVNOs could better target niche data segments, such as enterprises and verticals, with specialised devices and applications. In Taiwan, one of the fastest growing MVNO markets, the regulator requires prepaid SIM sellers to have a direct sales channel. This prompted all 3G operators to invest in distribution chains to enter the MVNO race, thus providing an opportunity to existing distributors to upstream mobile services, leveraging their extensive distribution networks across the island. In countries like India which have very low ARPUs, wide-scale, mass-market rollouts are difficult. An interested player could become an “agent” of the mobile network operator, and market its brand over the operator’s network. Segments such as the youth market (through youth-oriented content, branded handsets and starter packs with stronger branding and distribution); mass market (by leveraging existing fixed and broadband operations); and small and medium enterprise clients are all areas to be explored by MVNOs.
What other similar business practices have emerged globally or are likely to emerge in the next few years? Which of these are more relevant in the Indian context?
Abhishek Kapur: Two things are currently being discussed in the industry. One is pure-play rural telecom operators. These are the operators who will be given licences to operate at the district or state level, probably only catering to the rural side of the market. Another concept that Russia is considering is whether companies can be set up utilising the Universal Service Obligation Fund to service rural customers. Whichever model India adopts has to address the rural market because the challenge lies there. Urban teledensity is touching 45 per cent while the rural market is lagging behind at 4 or 5 per cent.
I am not too convinced with the model that runs operations on subsidies received from the fund. Though initial support may be required, there should be a phased plan to withdraw the support and let everyone compete. Any model that addresses the rural market and makes it cost effective is the one that will be launched in India soon.
Usha Rajeev: The global MVNO market has relied on a prepaid model ?? this is now expanding to include post-paid. In India, given the proportion of prepaid customers, a post-paid MVNO product is likely to be placed as a premium product. Post-paid services will, of course, require robust back-office operations and higher acquisition costs.
MVNOs focusing on back-office integration are growing rapidly. Given the income potential of the enterprise segment, such operators are likely to be seen in India soon. A variation of MVNOs which focus on international roaming and offer transparency on international tariffs is also likely to be seen in India given the rise in inbound and outbound traffic.
T.V. Ramachandran: The international scenario is very different from India. Here, the main opportunities are offered by the rural and semi-urban areas since they remain untapped. An MVNO business model may be designed for such areas. Similarly, a model may also be innovated for the urban areas, like Virgin Mobile has done with the youth in mind. One could also come up with an MVNO business case for the elderly and retired people. For example, a product could be designed for them to communicate with their families abroad. MVNOs could start looking at such niche areas.
Prashant Singhal: Many business models have evolved, from simple resellers and niche providers to advanced value-added MVNOs. There is no unique success formula for MVNOs, nor should they imitate others’ models to take on the market. MVNOs should learn from European and American markets. In particular, they can draw on their experience in positioning, branding, business case, market access and partnership.
A key factor for MVNO success is to find its unique value proposition to differentiate it clearly from existing competition. It is thus crucial for new entrants to understand their core competencies as well as their competitive market dynamics, underlying opportunities, regulatory issues and demographic demands.
MVNOs have full control over the SIM card, branding, marketing, billing and customer care, while some niche players may need the support of a mobile virtual network enabler. In all cases, good MVNO models are built around cost control.
What are the main hurdles that MVNOs are likely to face in India?
Abhishek Kapur: Policy is the main hurdle. We are not yet open to MVNOs. Once policy is taken into consideration, how the operators will compete and how they will differentiate themselves will be a challenge. Apart from that, MVNOs need a network for operation, and if operators are going to see them as a threat, MVNOs will not survive. They have to coexist for mutual benefit.
Usha Rajeev: The Indian market is one of the most competitive markets in the world, with possibly the largest number of operators per circle and amongst the lowest tariffs.
The entry of additional product providers is likely to increase the pressure on tariffs, which will be sustainable only if significant market expansion happens.
The Indian customer is far more valueconscious than the global customer. The existing operators will hence find it a challenge to differentiate their own offerings from those of their MVNOs, and hold tariffs at sustainable levels. Given the multiplicity of operators, the complexity in back-end infrastructure linkages and quality of support is likely to be significant. Effort will be required to ensure that customer service, security and provisioning do not get impacted.
T.V. Ramachandran: The biggest hurdle is that India is such a low-ARPU, low-tariff market that making surplus material available for MVNOs is very challenging. Network operators may not have any surplus airtime ?? they do not have any capacity lying idle. There is probably a market for MVNOs, but to address this market with such low tariffs and almost no extra capacity is a big challenge.
Prashant Singhal: Since the telecom policy in India does not permit the entry of MVNOs, clarity on policy directives is central to the future of MVNOs in the country.
Analysts suggest that an MVNO must consider its business plan carefully if it is to survive ?? operational cost controls are vital for success, even more than capital investment. In addition, the MVNO must plan how it can fit into the market and integrate its bought-in mobile services with its business processes and other services.
