India Welcomes MVNOs
Published on: 4th March 2009
Opinion by Charice Wang and Raymond Yu, analysts at Ovum
On Monday, the Indian government finally gave the go-ahead for mobile virtual network operators (MVNOs) to enter the market. This follows a recommendation back in August 2008 from India's regulator, the Telecom Regulatory Authority of India (TRAI). The government is expected to release detailed guidelines for MVNO entrants soon. We believe this approval will benefit both existing MNOs and new entrants.
The introduction of MVNOs in India was first raised in May 2008, when the Indian regulator published a consultation on the need for and timing of MVNO entrants. At the time, the regulator's view was to use MVNOs to help promote mobile market development and contribute to its goal of 500 million wireless connections by 2010.
The opening of the Indian mobile market to MVNOs is likely to attract many new entrants. Just as important, it also allows regional MNOs to become MVNOs to enter other regions and eliminates the expense of investing in a new licence or acquiring a local MNO. This should promote competition between existing MNOs and throughout different regions.
MVNO terms should be in line with NRA's previous recommendation
Following the positive response from the government, we envisage the forthcoming guidelines for MVNO entry will be similar to those put forward by the TRAI in its last recommendations. At the time, the key issues were:
- MVNO licence - under the Indian Telegraph Act, MVNOs need a licence to operate. This licence will be dependent on the service area of its host MNO
- MVNO licence fee - MVNOs will have to pay an entry fee and annual licence fee. Entry fees will be around 10% of the host MNO's entry fee. Annual licence fees will be the same as that of the host MNO
- Interconnection charges - these will be based on commercial negotiation, as the TRAI has recommended that charges need to be agreed between the host MNO and MVNO, and driven by market forces
- Foreign ownership - the FDI limit is 74% for new entrants, which is the same as for MNOs in India
- Consumer protection - the need to protect subscribers from failure of agreement between the host MNO and MVNO, or an MVNO exiting the market.
New entrants need to find the gems
Being able to enter a huge market with a population of 1.2 billion people when the mobile penetration rate is extremely low at around 26% is certainly a dream prospect for MVNOs, and many will find it hard to resist.
We suspect many new entrants will steer clear of targeting rural regions altogether. Firstly, this is to avoid direct competition with the Indian MNOs, which are all aiming to capture new customers via aggressive expansion into the rural regions. Secondly, many new entrants are likely to find it tough to compete and survive on such low margins, particularly while being constrained by their wholesale deal.
The urban regions will also be difficult for new entrants. Mobile adoption is now widespread in India's cities and towns. It is no coincidence that 30% of the Indian population lives in the urban regions and that the mobile penetration rate is almost equal to this. In addition, the MNOs are very price competitive in terms of domestic and local calls, so it doesn't make much financial sense for MVNOs to compete head on. Instead MVNOs must segment the market and go after the under-served. One lucrative example is to target the wealthy segment by offering concierge services - a strategy employed by Dutch MVNO Baron (as described in our report ‘MVNOs targeting the wealthy'). Another potential segment is to target customers that make low-cost international calls, such as those that have family abroad - Lycatel and Lebara have successfully employed such a strategy in Europe.
Early entrants will seize the best opportunity, but being hasty is not advised. With the upcoming 3G licence auction imminent - last reported to be at the end of March 2009 - MVNOs need to make sure they choose the right partners that can allow them to offer the best range of services for their targeted segment.