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The growth of the Indian telecom industry is impressive and heading for a new leap despite the global financial slowdown. With over 350 mn subscribers, the Indian telecom market is today the second largest in the world. And the fabulous growth still leaves us with plenty of scope to expand in uncharted segments like rural India.

Realizing the need of strengthening the market further and to make it more competitive, the Indian government has finally woken up to the potential of mobile virtual network operators or MVNOs. It has recently accepted Trai's proposal for the entry of MVNOs in the domestic market, the detailed guidelines of which are expected to follow soon.

Looking at the current industry dynamics, Western Europe comprises around 40% of the worldwide MVNO subscribers. And the total MVNO market is expected to account for 3% of the total mobile market.

Beyond the traditional consumer market, there is a definitive space for enterprise services as well. But this would require credibility of these players and have strong credentials in areas like security and PBX.

Mixed Response
An MVNO provides mobile phone services without having any spectrum and other telecom infrastructure. It purchases air time from an existing player and resells them to the customer. Many foreign players are keenly following development in India, and do not want to miss the opportunity, given its many advantages. The business model is expected to open new vistas for players who intend to offer mobile services, but do not have the UAS license to do so.

Across the globe, the MVNO concept has received a mixed bag of successes and failures. While Western Europe has seen significant buoyancy in its effectiveness, both from the execution and functional aspect, a thriving MVNO model has become difficult to establish in Latin America. So far it has not been able to execute the number portability regulation, which according to experts, is crucial to create a gratis-enterprise environment, ideally suited for MVNO.

Trai's announcement though has raised a set of debates on the relevance of the MVNO model in the country. On the face of it the belief is that the model, having worked fairly well in the western world, would work in India too. But in India it is the volume of services that drives growth rather than the high profitability of services. Also, looking at perpetually reducing tariffs, shrinking ARPUs and low margins of operators, the success of MVNO can strictly be questioned.

“Players who intend to enter the market should have a clearly identified strategy and appreciation of the market. They also have to realize that price sensitivity of customers is very high-expectations have been set by low costs of voice and data services by operators. Thus, the players have to have a medium to long term holding plan for the market-there is no space for quick profits here,” says Avi Basu, CEO, Connectiva Systems.

Focus on the basic infrastructure is missing; good quality of service still seems to be an uphill task; and the market has still not opened up in rural areas. It seems like the existing MVNO model is complicated for the domestic market, and except in metros like Delhi and Mumbai, it is not going to deliver the required results.

“It is fairly easy to build a base of 10 mn subscribers after which sustaining the growth is going to be a challenge,” says Samvit Raina, VP, telecom solutions, Patni Computers.

The scarcity of spectrum is yet another issue that needs to be addressed. The situation may get better if the Ministry of Defense releases spectrum in the near future, but it is quite unlikely that operators will charter it out to an MVNO.

Expressing similar thoughts, CS Rao, chairman, WiMax Forum says, “At least for the next three years, MVNO is not a business case in India. This model is primarily suited for matured markets. India still needs to build the momentum over basics.”

Also, if not evaluated properly such deals can prove to be a menace for existing operators, especially those with limited capacity. This could result in a drop in the number of customers, create oblique price pressure and build demand of their own guarded spectrum and bandwidth.

Says Shankar Allimati, VP, next generation networks, Tech Mahindra, “If a wrong deal is made, the impact can be serious. If no deal is made, then other MNO/MVNO combinations can create a competitive threat.”

“One hypothesis suggests that by offering concierge services to the affluent section, MVNOs can maintain a steady approach in the Indian market. Another business model could be to focus on customers who make low-cost international calls such as those that have family abroad. We are looking at the MVNO possibilities in India and have a strategy to offer solutions and services,” Allimati adds.

Chasing New Rules
In the current period of slowdown, MVNOs can help operators to expand. Considering that MVNOs' strength is in core competencies like sales and marketing, network operators can focus on managing the network, expanding coverage and increasing capacity.

It would also encourage companies to bring forth a wide range of deals, services and innovative technology frameworks to meet new business needs. “MVNO definitely holds a good opportunity for operators. It means profit for any service provider. We are only waiting for the government policy. Once it is there it will definitely excite operators including us,” says TV Sriram, VP, Bharti Airtel.

The unfolding of the Indian mobile market to MVNO will certainly draw the attention of new entrants. Recently, Nokia and Ericsson were reportedly contacted, the Indian regulator over virtual mobile services. However, both denied the speculation later.

According to industry experts, if materialized MVNO can help regional MNOs to enter other regions and thus eliminate the expense of investing in a new license or acquiring a local MNO. But this could also build up a tough competition between existing operators across the region.

“An MVNO will help to reduce the total cost of ownership. RoI will significantly improve and the market will see strong competition. However, hiccups like delay of policies and guidelines can create roadblocks in the entire process,” says Kiran Pande, president, ECI Telecom.

To be successful in the Indian market, MVNOs would need to segment the market and align their business goals with market volumes. They can learn from experiences of global players and schematize the prospects as per the needs of the domestic market.