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Virtual Reality: MVNOs set to enter the Indian telecom space

May 19, 2016
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The entry of mobile virtual network operators (MVNOs) in the Indian telecom space could open several opportunities for telecom operators. It will result in the efficient use of telecom infrastructure and assets and enhance the affordability and reach of telecom services. Startups as well as big conglomerates from both technology and non-telecom fields are likely to apply for MVNO licences. They include companies operating in customer-facing verticals like retail, e-commerce, financial institutions and media. A look at the MVNO opportunities and challenges in India and the likely impact on the industry… 

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How is the entry of mobile virtual network operators (MVNOs) likely to change the Indian telecom landscape?

Kunal Bajaj

The first question is whether MVNOs would even like to enter the Indian telecom market. While the policy has been released now, the concept of MVNOs has been there for quite some time. For instance, Virgin Mobile operated as a joint venture between Tata Teleservices and the Virgin Group. The release of the policy is unlikely to make any significant difference to the way MVNOs have operated before. The only difference the policy would make is that MVNOs would be able to partner with multiple operators. However, effectively, they would not be able to partner with more than one operator in one circle.

Hemant  Joshi

The Indian telecom market is the second largest in the world with 1.02 billion subscribers. However, there is still a significant population that lives in rural and remote areas and does not have access to telecom services due to poor infrastructure and lack of last mile connectivity. Rural teledensity is just 48 per cent. Operators find it difficult to invest huge capital in infrastructure in rural India where the returns on investment are typically low.

In this context, MVNOs resell the voice and data services of telecom operators at a much lower price and with more flexible plans. Allowing MVNOs in India will reduce telecom tariffs as well as help services reach a larger population. It will also benefit operators as they can rent out their unused spectrum and infrastructure to MVNOs for monetary benefit and optimise the use of spectrum.

Inderpreet Kaur

The implications of MVNO access for operators will be more visible once the industry starts consolidating and will depend on how mobile network operators (MNOs) choose to utilise MVNOs as partners in their wholesale strategies. While disruptors like Google, Facebook and entertainment/media companies that are eyeing over-the-top (OTT) opportunities are likely to benefit from the move, their success will be limited by the fact that operators have not been very comfortable with offering data-only wholesale offers. Operators have mainly followed an approach that offers mature services (voice and SMS) rather than fast growing data services.

Dr Mahesh Uppal

Theoretically, the entry of MVNOs could change the Indian telecom landscape significantly. However, in practice, MVNOs are likely to have only a limited impact. This can be attributed to the fact that the entry fee of Rs 75 million is fairly high. Moreover, MVNOs will also have to pay the usual annual licence fee. This would weaken the business case for MVNOs. MVNOs will work best if the arrangement they make with telecom operators is left to be determined by market forces and is not regulated.

What opportunities and challenges do MVNOs bring for telecom operators?

Kunal Bajaj

MVNOs are a much lighter version of telecom companies. Usually, by offering customised packages, these MVNOs bring a lot more competition in the telecom market. However, in the Indian context, this is unlikely to happen because the incumbent telecom operators themselves have so many discounted packages on offer, which are already quite customised to the needs of different user segments. Hence, there may be some niche markets in which MVNOs have some opportunity to target undertapped users. But, by and large, the Indian market is already very competitive.

Hemant Joshi

Some of the opportunities and challenges are as follows:

• Opportunities: Operators will be able to provide affordable telecom services (data and voice) to the masses. They will be able to use the telecom infrastructure more efficiently. The emergence of MVNOs will open up new revenue streams for operators and lower operating costs as MVNOs will share some cost. In addition, it will lower marketing and sales costs. State-run operators will get an opportunity to make efficient use of unused spectrum.

• Challenges: Tariffs are already very low due to high competition and the entry of MVNOs could start another round of price wars.

Inderpreet Kaur

There are opportunities for “ethnic” MVNOs, such as those targeting individuals with friends and families living abroad or focused on serving the needs of the rural segment. UK-based Lebara Mobile started by offering cheap international airtime to migrants, and then slowly introduced its own OTT services (Lebara Play), offering specific content to migrant communities. Small-scale or regional internet service providers will have the opportunity to offer dual-play bundles through MVNOs; however, scaling opportunities will be limited. Over the longer term, the focus would be on MVNO opportunities in the internet of things/machine-to-machine segments.

Dr Mahesh Uppal

MVNOs will enable telecom operators to get better value from their already acquired spectrum. They are also expected to develop markets for operators in untapped areas. MVNOs are unlikely to pose any major threat to the incumbent telecom operators. Besides, few operators have spectrum, which is not being used optimally.

What challenges are MVNOs likely to face in the Indian market?

Kunal Bajaj

The biggest challenge for MVNOs will be finding a network partner. They will have to reach out to operators that have excess capacity or excess spectrum in particular circles. Further, it is very unlikely that the operators will allow MVNOs to offer 3G/4G services. MVNOs are most likely to offer only 2G voice services.

Hemant Joshi

MVNOs are likely to face the following challenges in the Indian market:

• Competition: The market is highly competitive for new entrants to set up their business.

• Profitability: The model is yet to be tested in India and is likely to reach break even in the long term.

• Brand: MVNOs will find it difficult to attract customers as the latter are already used to bigger brands like Airtel and Idea. Therefore, MVNOs will have to incur high marketing costs in order to attract customers.

• Regulatory challenge: The complex regulatory scenario and high tax burden will be challenging for MVNOs. 

Inderpreet Kaur

India is already very competitive in terms of pricing. For MVNOs to be successful and profitable, they will have to ensure long-term lucrative agreements with MNOs, gain access to high speed data networks, and offer undifferentiated quality of services. Australia’s Amaysim is an example to learn from. The MVNO’s long-term network supply agreement (NSA) with Optus is central to its business continuity and its ability to compete effectively. Amaysim first entered its NSA with Optus in September 2010, with the most recent renewal to that agreement in December 2014. The renewal included access to 4G and provided for a second five-year term with an option for Amaysim to extend the agreement for a further five years to December 2024. On the services side, success will depend on the ability to offer value-added services and, therefore, the capacity to secure as much access as possible to network infrastructure.

Dr Mahesh Uppal

The high entry cost and the annual fee that has to be paid as a proportion of revenue are the key challenges that MVNOs are likely to face in the Indian market.

What is the likely profile of companies that will apply for MVNO licences?

Kunal Bajaj

An MVNO theoretically has to come with either a very well-recognised brand that has a large existing subscriber base or it will have to connect with a particular sub-group or niche group of users. For instance, in many international markets, MVNOs have targeted prepaid users, where otherwise post-paid was the dominant mode of mobile subscription. Moreover, some MVNOs have also targeted people of different geographical entities living in a country; for instance, Latin Americans living in the US. The core competencies of MVNOs do not lie in the technology of setting up the network but the ability to target a particular sub-group or nice group of users. 

Hemant Joshi

Start-ups, existing MVNOs and big conglomerates are expected to apply for MVNO licences. Start-ups may come with new business models like instant messaging and VoIP calls while conglomerates will try for new business verticals. Technology companies like Google may launch their existing projects like “Fi” in India, which is an MVNO owned by Google. This will provide wireless phone and data services using Wi-Fi and cellular networks belonging to Sprint and T-Mobile. In order to save high operating costs and capital investments, even small operators may exit the market to embrace the MVNO model. As per the GSMA, there are eight separate categories of MVNOs: discount, telecom, media/entertainment, migrant, retail, business, roaming and M2M. Companies with existing businesses in these sectors are also expected to apply for licences.

Inderpreet Kaur

Globally, both telcom operators (fixed line and cable TV) and non-telecom operators have entered the MVNO business. Non-telecom service providers are mainly media and entertainment firms, financial institutions and retailers. More recently, we have seen the entry of Google, WeChat and Line into the MVNO space. There are unconventional players too. Italy’s largest MVNO, PosteMobile, is owned by the country’s post office. Companies running successful MVNO operations share a few characteristics such as an established retail presence, ownership of key customer touch points, strong financial backing to run discount-based models, and a cost-efficient operational model.

Dr Mahesh Uppal

Mid-sized business groups that may not wish to acquire any spectrum on their own are expected to leverage the MVNO opportunity. It will be of particular interest to companies like the Future Group, which already have a large community of customers subscribing to their services. These companies are likely to launch MVNOs to improve their own efficiency by cutting costs and streamlining their operations.

How has the MVNO model emerged globally and how successful is it expected to be in the Indian context?

Kunal Bajaj

Gloabally, MVNOs have targeted prepaid subscribers who are not able to commit to long-term contracts or people of different geographies living in a country. Most MVNOs, however, have not done particularly well in terms of financial performance. In India too, MVNOs are likely to face major challenges in terms of finding the right network partner and offering discounted packages given that the telecom market is already very competitive.

Hemant Joshi

The MVNO model has been adopted in many parts of the world. It has been successful across Europe and the US. About two-thirds of the global MVNOs are present in Europe and have helped Europe surpass 100 per cent penetration. Some countries are encouraging MVNOs in order to achieve cost-effective and accelerated telecom growth. The same is expected in India, especially to increase telecom penetration in rural and remote areas.

Inderpreet Kaur

MVNOs were basically allowed to introduce service-based competition at a much later stage in a maturing mobile market. Looking at the global markets, MVNOs have been most successful in Western Europe, where their share of total mobile connections is much higher as compared to other regional markets. In the Asia-Pacific region, MVNOs have seen much success in most of the developed markets including Australia, Hong Kong, Japan, South Korea, Singapore and Taiwan. A common characteristic of these markets is a high proportion of post-paid subscribers and the lack of SIM-only offers from MNOs. Therefore, a reasonable proportion of MVNOs in these countries started as mass market prepaid MVNOs.

In the Indian context, since the country already has among the lowest voice and data charges, with cut-throat pricing competition in the existing 12-player market, the MVNO model will have to be more than just the traditional discounted tariff model. The most successful cases would be those that are able to identify niche customer segments and implement targeted marketing strategies.

Dr Mahesh Uppal

MVNOs are unlikely to have a major impact at the consumer level in India and are expected to be used by large companies for streamlining their operations. Globally, MVNOs have done fairly well owing to the fact that becoming an MVNO is considerably easier and cheaper in international markets. However, in India, the difficulty in securing a licence, the high licence fee, the payment of annual charges and the fairly onerous regulations will make it difficult for MVNOs to operate successfully.

 
 
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