Info-tech

Mobile Virtual Network: an idea left for too late?

Thomas K Thomas Mumbai | Updated on January 20, 2018

MVNOs are service providers that take bandwidth at wholesale rates fromexisting operators, and re-sell them with their own tariff plans

Govt to finally issue licences to MVNOs, but existing operators could spoil the party



What is common to Disney Mobile, Mobile ESPN, Amp’d Mobile and Qwest? All of them have tried to get into the telecom business as a Mobile Virtual Network Operator (MVNO) – and failed.

What began in 1999 – when Richard Branson’s Virgin started using T-Mobile’s network and spectrum to offer cellular services in the UK – became a global phenomenon, with more than 350 MVNOs around the globe by 2009. The business made perfect sense then, because brands with strong retail presence got to become a mobile operator without having to either bid for spectrum, or invest in owning communications networks.

MVNOs are service providers that take bandwidth and infrastructure on wholesale rates from existing mobile operators, and re-sell them with their own branding and tariff plans.

Indian policy makers have been trying to make rules for allowing MVNOs for the past 8-9 years. On Monday, the Telecom Commission decided to finally start issuing licences.

But is it too late, especially since there are as many as 7-8 mobile players already offering the lowest tariffs in the world? While incumbent operators believe that there is not much scope, analysts say that virtual operators could still have a place.

Foreign interest

Back in 2007, a number of global operators including British Telecom (now known as BT), AT&T, and France Telecom had shown interest in the Indian MVNO space, urging the regulator to open the licensing process.

That’s because, back then, getting into the Indian telecom market was tough due to lack of clarity on the spectrum allocation process and no guidelines on issuing new licences. Now, any global player can set up a 100 per cent unit in India and acquire spectrum through the open auction.

“MVNOs may find it tough to operate in a highly competitive market, where a telecom operator may not be willing to share spectrum and infrastructure with a company, which in turn could ultimately end up competing with the same subscriber,” said a market analyst.

Tata-Virgin JV

The partnership between Tata Teleservices and Virgin Mobile is an example in the Indian context. After riding with the Tatas for three years, Virgin Group exited from the joint venture, Virgin Mobile India, in 2011.

Although the two companies had declined to term the partnership as an MVNO, Virgin was using Tata’s spectrum and network for a fee. However, the venture did not last owing to differences in sharing the network, according to one former Tata executive.

MVNOs could, however enable non-telecom companies to enter the mobile world.

“Their specialties, such as brand, content, and distribution, are strong assets to create an attractive business proposition. Apart from customer acquisition, the benefits of non-telecom players becoming MVNOs are – enhanced customer relationship and more direct and easy access to the customer through mobile devices. An MVNO such as a bank or a retail chain is in a better position to afford razor-thin margins, leveraging the shared overhead costs by other lines of business,” said an analyst. Globally, MVNOs have been successful only if they offer a ‘low frill’, ‘low cost’, ‘SIM only service’ to customers, and if they offer a differentiated service offering to a target segment, creating a niche.

Analysts point out that in order to position themselves as serious MVNO contenders, players must possess significant existing leadership of brand, distribution network, and overall financial backing.

There could be challenges too. “MVNOs have to compete with well-entrenched players. This could mean higher marketing and distribution costs for MVNOs as they rely heavily on branding. MVNOs also are completely dependent on the host carriers’ network coverage and reliability, and depend on them for service upgrades,” said a Mumbai-based analyst.

The necessity for MVNOs to compete on price in the short term, particularly in the low Average Revenue Per User (ARPU) Indian environment, exerts pressure on MVNO profit margins.

But some researchers reckon that the Indian mobile services market is moving towards one that will be conducive for the entry of MVNOs, especially in the 3G and 4G space.

“Network operators may be willing to host MVNOs as they feel the pressure to monetise their huge capital investment on the network and spectrum, and to seek return on capital. In this context, MVNOs can help operators utilise their infrastructure more efficiently, thereby expanding market share, addressing underserved market groups, and reducing subscriber acquisition costs. The advance of 3G technologies also enables media and entertainment offers,” said a researcher at a major credit rating agency.

Published on March 28, 2016

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