MVNOs are here

In a move expected to heat up competition in the world’s fastest growing mobile market, telecom regulator Trai asked the government to allow Mobile Virtual Network Operators (MVNOs), whose business model involves buying air time from existing operators and then selling it under their own brand, to launch services in India. This will enable firms to allow to offer mobile services without owning cellular networks.Companies such as the UK’s Virgin and BT Mobile and Japan’s KDDI have based their telecom strategy on the MVNO model. At present, there are 360 MVNOs operating globally. Trai has recommended that entry fee for MVNOs be fixed at a maximum of Rs 5 crore for Metro/Category A, Rs 3 crore for Category B and Rs 1 crore for Category C service areas. This implies that an MVNO will have to pay a maximum of Rs 75 crore for launching nationwide MVNO services in comparison to the Rs 1,651-crore entry fee paid by an operator who sets up its own physical network throughout the country.Trai’s recommendations, which stand a good chance of being accepted by the government, will have major implications. First, global telecom majors who missed the India growth story will get a second chance to enter the country through the MVNO route. An entry into the country as a virtual operator will help save the time it takes to set up physical networks across the country.Besides, it will enable them to roll out services in specific zones, say only in the metros and large cities, and focus on particular segments of the population. Second, with the government unveiling the roadmap for the introduction of high-end services on mobile (also called 3G), MVNOs can selectively offer highend services in this space. Safeguards to protect subscribers in place .Globally, the MVNO model has experienced phenomenal growth in the 3G space, as such players are able to connect with end users through highly specialised value-added services and superior branding. Analysts also say that this model could help accommodate several new operators in the country without aggravating the severe spectrum crunch in the country. Also, some of the new entrants have been granted licences only for a few circles and can now expand to the rest of India using this model.For the time being, however, existing telcos are confident that MVNOs will not pose a threat to them. “MVNOs are successful in markets where there are few players and high tariffs. But in a country like ours where there are so many operators, rock-bottom tariffs, and a wide range of services, MVNOs may not have a USP. It will not be easy to undercut large operators such as Bharti, Vodafone and RCom on the price front as they have large economies of scale,” says TV Ramachandran, the director general of COAI, the industry body of GSM operators.Trai feels that MVNO will enhance free market principles and contribute to the efficient use of existing telecommunication infrastructure. “The introduction of MVNO should help the MNO (mobile network operator) to widen and deepen its market besides promoting competition in the market. The challenge is to optimally utilise available resources while ensuring competition and availability of services at affordable price,” Trai said while announcing its recommendations on the issue. Trai, in its recommendations said that MVNOs should be issued separate licences and the foreign holding for players in this should be at 74%, on par with existing telecom operators in India. “Any Indian company having a net worth of Rs 10 crore for Metro/Category A, Rs 5 crore for Category B and Rs 3 crore for Category C service area, paid-up capital of 10% of prescribed networth and satisfying licence conditions such as FDI, substantial equity should be eligible to apply for MVNO licence,” Trai added. The regulator has also proposed that existing players be allowed to enter into tie-ups with any number of MVNOs, adding that virtual operators should not be given any rollout obligations. Trai wants MVNOs to be subject to the same revenue share licence fee as that of the existing players. At the same time, MVNOs will have to pay spectrum charges to the operator whose network they use. The regulator said that MVNOs should be free to choose any business model — full, intermediate or thin. Typically, a ‘thin’ MVNO would offer services in its own brand without any infrastructure while a ‘full’ MVNO sets up its own HLR, VLR, IN switches, MSC etc., but not the radio access network (RAN). Trai also does not want the government to intervene in the agreement between the MVNO and the operators whose network it is riding on. All issues such as the allocation of numbers, number portability, interconnection with other service providers and roaming must be provided by parent operator whose network the MVNO uses, Trai added. Interestingly, in a bid to protect subscribers’ interest, Trai said that the MVNO and the parent operator should have an agreement in place to safeguard the customers if either of stakeholders were to pull out of the deal. All current merger and acquisition norms will apply to MVNOs. Industry watchers say this may act as a deterrent to MVNOs entering India as the regulations are structured against virtual operators. This is because, globally, MVNOs often pick up small equity stakes in the networks of operators they use. If an MVNO were to use the networks of multiple players here and intends to pick have an equity stake, it is a difficult proposition as current Indian regulations do not allow a company to hold more than 10% stake in different telcos. Similarly, if many existing Indian operators or even one of them want to pick up stake in an MVNO, the same regulation applies.According to Indian Cellular Association national president Pankaj Mahendroo, the entry of MVNOs could promote bundling of handsets with cellular connections as operators would look into tapping into niche markets. He also added that MVNOs could lead to improved sales volumes for high-end product categories like music phones and internet-enabled phones. For India’s regional operators, MVNOs may enable them to gain additional revenues additional revenues and contribute towards the creation of sizable capital value. This will be a boon for the smaller players especially since margins in India are razor-thin and tariffs are the lowest in the world.

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