SHOULD MVNOs BE GIVEN LICENSE TO OPERATE IN INDIA?

Indian telecom market is a hot spot for the telecom industry worldwide. Currently there is quite a considerable buzz about MVNOs supposedly due to China’s ‘snail mobile’ entering Indian telecom market as MVNO. The buzz which may seem new to many is actually almost a decade old. TRAI, back in 2008, had floated a consultation paper asking for opinions from major telecom service providers and other concerned entities regarding MVNO. In various countries such as Netherlands, France etc. MVNO is a reality. So what is MVNO?

MVNO is expanded as ‘Mobile Virtual Network Operator’. TRAI paper dated 9/2008 describes MVNO as:

“MVNO licensee is an entity who has no frequency assignments, but who can provide mobile services to users by means of entering into an agreement with a licensed access service provider”.In simple words MVNO is a telecom service provider who provides telecom services but doesn’t own spectrum bands or infrastructure. An interesting point to be noted is that the MNOs (mobile network operators) which serve as the parent company to MVNOs ‘does not’ share any spectrum.

Few observations made by COAI regarding MVNOs are as follows;

1. Does not own or has been allocated a spectrum band
2. Does not have access to the spectrum
3. Does not own or has been allocated a RF spectrum band
4. Does not share spectrum with MNO.

Other than this an MVNO comes under the same guidelines and regulations as MNOs.

An example of MVNO would be virgin mobile and T24 of future group. These companies didn’t purchase actual spectrum instead use the infrastructure and spectrum of the existing telecom service providers. The MVNOs buy bulk minutes from the MNOs and in turn sell them to the end customers.

Proposal for MVNOs

In August 2008 the Telecom Regulatory Authority of India floated a paper calling for opinions on MVNOs. Many telecom companies responded to it, prominent of those being

Tata Teleservices, Reliance Infocom, COAI etc. The reason to introduce MVNOs in the market was given as to promote healthy competition among telecom service providers and enable the growth of telecom sector. Also it was envisaged that spectrum be owned by one party, infrastructure by another and MVNOs doing just the marketing. Introduction of MVNOs would even serve as fixed source of limited income to the other MNOs which have been reeling under the effects of indebtedness to the banks due to spectrum auction.

Implications

The COAI along with others observing global deployments suggested that the concept of MVNOs was possible only if;

• Excess capacity/ supply exists
• Where ARPU( avg. revenue per user) is high
• The market having high penetration

If observed in India the existing operators are struggling with amount of traffic being carried by the network. This is basically due to high population of the country. Operators themselves are pushing hard to increase their traffic carrying capacity so as to cater to the traffic being put on the network. So there is no or very little excess capacity available with the operators right now to lease it to MVNOs. Also if the demand shoots then the band allocated to MVNO will probably not be able to handle the inflow of traffic.

Secondly as per TRAI the penetration in the country is comparatively less compared to US and China. It was just 25% when the paper for recommendations on MVNO was floated. Although the issue remains, the prime metropolitan markets have already been captured by the top service providers. The spending power of consumers in metropolitan areas is also more so they won’t easily be persuaded to opt for services at cheaper rates with an unfamiliar service provider. This leaves the MVNOs with the rural areas. Though a consumer residing in rural area may be persuaded to buy new sim card but the income generated through rural areas is not substantial. This scenario may put an MVNO in jeopardy and if the capital invested in buying bulk minutes from MNO is not recovered as expected then the company might have to shut down.

Finally, the ARPU or average revenue per user in India is not significant. Telecom is a heavily regulated industry in India and due to various government policies and regulation call rates in India remain amongst the cheapest in the world. Keeping in accordance with these regulations, buying of bulk minutes from other operator

and selling them at cheap price to the end customer the MVNOs would have to operate on a very thin margin. This in most cases would not be enough to sustain the company keeping in mind the cost it has to incur on branding an advertising so as to gain foot hold in the new market.

Conclusion

Currently 12-13 mobile service providers are active in India right so a healthy competition already exists. India is the second with respect to the number of mobile phones users still the companies are struggling to turn investments into profits. There is also the case of tax. Net tax on telecom companies is 42%. Although the MVNOs do not own any spectrum the COAI report suggests them to be treated as MNOs. Because of this MVNOs will be charged on same grounds as MNOs. Considering all these factors it can be concluded that conditions aren’t conducive for MVNOs to bloom and sustain in Indian market.

Yash Nalawade

Batch - 2016-18
Symbiosis Institute Of Telecom Management