10 May 2009

Foreign telcos to take MVNO route into India

04 05 2009 - INDIA- Mobile virtual network operators (MVNOs) will change India's telecom landscape with a flurry of promotional schemes and marketing activities and drive up penetration levels, say analysts.

In March, the Indian government approved MVNOs to enter India. Though the detailed guidelines addressing issues such as license fees, interconnection charges between the host operator and the MVNO, foreign ownership limit and consumer protection, are yet to be announced, the move is likely to draw substantial interest from foreign players.

Manesh Patel, partner, risk advisory services, Ernst & Young, told ZDNet Asia in an e-mail: "Entering as an MVNO is by far the quickest means to make a presence in the Indian telecom market."

According to an industry source, the Indian government's Department of Telecommunications (DoT) has received several MVNO applications that are awaiting approval. Many global players are tipped to be interested in entering the Indian market through the MVNO route, including BT, Telekom Malaysia, Mobile ESPN, Nokia, Ericsson and ValueFirst.

James Moore, research analyst, Informa Telecoms & Media, told ZDNet Asia in an e-mail: "Though the Indian telecom market is already very competitive, the large size of the market and its terrific growth potential are the two key factors that will attract foreign MVNOs into India."

Even existing telecom players in India may take this route to expand.

Nupur Singh Andley, senior research analyst for connectivity at Springboard Research, said in an e-mail interview: "Existing players can now launch operations in areas where they are not present, without investing in their own infrastructure."

An MNVO's first requirement is there should be spare capacity with an existing licensed operator in the area where it wants to launch its services.

Arpita Pal Agrawal, associate director, PricewaterhouseCoopers India told ZDNet Asia in a phone interview: "Therefore, the newer players entering the Indian market will probably host MVNOs, as opposed to the established, larger players."

Patel said: "There are essentially two kinds of MVNOs--budget and niche." The budget type competes on voice and SMS pricing. They will focus on a low-ARPU (average revenue per user), high volume market.

Niche MVNOs cater to specialized segments, offering a suite of services including differentiated content, customer service, information services and promotional offers. "It is these niche operators that will make a mark in the Indian telecom market," he added.

In fact, said Agrawal, mobile marketing will pick up as a result of MVNOs.

A win-win scenario
Globally, MVNOs enter a market when it is relatively mature--when mobile penetration is over 50 to 60 percent, 3G services have already been launched and there is a high degree of competition in the market.

Patel said: "While all these conditions do not exist in India today, it is already one of the most competitive in the world."

India is still an under-exploited telecom market with mobile penetration of around 32 percent and there is plenty of room for more growth. Further, the planned entry of a number of new network operators sets the stage for potential overcapacity.

"This would create an ideal situation for MVNOs that can buy capacity from mass marketers and exploit niche markets, thereby creating a win-win for both the network operator and the MVNO," Patel added.

While the entry of MVNOs may not result in a further reduction of tariffs, since tariffs are already quite low (at 1 U.S. cent a minute), it is expected to lead to more segmentation and niche offerings. MVNOs may target segments such as homemakers, teenagers and migrant construction workers.

For brands, MVNOs will be yet another means to increase their presence.

Moore said: "For example, if Kingfisher launches an MVNO, it could use the MVNO platform to promote its airline and beverages and offer special promotions to its user base."

Given the relatively high urban mobile penetration in the country, the focus of service providers has slowly shifted to India's large and currently underserved rural population.

Singh Andley said: "As this market also gets heated, MVNOs will need a clear market segmentation strategy and service differentiation in order to succeed."

While the big operators may not be too keen to host an MVNO, it will definitely be part of the plan for smaller national operators as well as the new entrants. According to Moore, GSM players with low brand recognition, such as Loop Mobile (formerly known as BPL Mobile), could benefit from an MVNO.

"Small and medium telecom players are more likely to engage an MVNO than large GSM players," he added

3G to play catalyst
One of the key reasons, according to Moore, why MVNO activity will rise in India is the opportunity to offer 3G services.

"The awarding of the 3G licenses and subsequent allocation of 3G spectrum will determine which operators need to use the MVNO route to offer 3G services," he said.

Concurred Patel: "Around the world, 3G is the catalyst for the emergence of MVNOs."

With 3G, operators will be able to offer high-end multimedia services and high bandwidth speeds. Once 3G is launched in India, the MVNOs will have more flexibility in creating services for their desired customer segment, such as online gaming or multimedia applications.

According to the industry source, Reliance Communications may take the MVNO route for its GSM foray.

Moore said: "With a cap on the number of 3G licenses, MVNOs will help drive up WCDMA (wideband code division multiple access) penetration as existing cellular operators who do not receive cellular licenses might want to become an MVNO on the networks of 3G license holders."

WCDMA is an air interface found in 3G mobile telecommunications networks and is a third generation follow-on to the 2G GSM networks deployed worldwide.

Informa forecasts mobile broadband revenues to reach US$3.9 billion in India by 2013.

Source: ZDNet Asia

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