Can MVNOs bail out India's small players?

news analysis While some analysts say the introduction of mobile virtual network operators (MVNOs) can boost the ability of India's smaller operators to attract consumers, others say the local mobile market is still "under-exploited" and not ready for this move.

MVNOs are currently not allowed to operate in India, but the government is considering the possibility of changing this policy.

MVNOs provide mobile phone services but do not own any cellular telephony infrastructure, and do not have their own frequency allocation of the radio spectrum. They buy airtime from existing telecom operators and then market it by leveraging their brand and distribution network.

At present, there are over 300 MVNOs operating globally. Some prominent players include Virgin Mobile and BT Mobile in the United Kingdom, Mobile ESPN and Japan's KDDI.

"MVNOs work as a concept in deeply penetrated markets that have over-capacity," a Mumbai-based analyst with a prominent global research firm told ZDNetAsia in a phone interview.

"In India, all players are hungry for spectrum and the market is still fairly under-exploited," said the researcher, who declined to be named.

In March this year, Siddartha Behura, India's Telecom Secretary of the Government, told reporters the Indian telecom market is maturing and the government is open to allowing MVNOs into the market.

Telecom regulator Telecom Regulatory Authority of India (TRAI) last week sought views from telecom industry players on whether MVNOs should be allowed to operate in the Indian market.

Little impact until market grows
Prashant Singhal, a partner at consultancy Ernst & Young India, told ZDNet Asia: "MVNOs won't make a big impact in India. Usually, MVNOs come in when telecom operators have achieved high growth and penetration. They then leave the network to the MVNOs."

Singhal explained in a phone interview that the mobile penetration rate in India is still low, at around 27 percent, and there is room to double that number in the next few years.

"When there is 50 percent penetration in India, the returns on every dollar spent on building a brand will be much lower," he said. "That's when even the large mobile operators, like Airtel Reliance Communications (RCOM) and Vodafone, may show an inclination toward selling airtime to MVNOs."

Companies such as Telekom Malaysia, Mobile ESPN and ValueFirst, have indicated an interest in entering the Indian market through the MVNO route.

According to analysts, Indian companies that have large advertising spend and existing infrastructure that can be leveraged for selling telecom products such as ITC or Kingfisher Airlines, may also make good MVNOs.

"The MVNO model can work for the fifth, sixth or seventh largest operator in India, which has little ability to attract consumers into the market," a telecom industry source, who declined to be named, told ZDNetAsia in a phone interview.

"Tata Indicom has not been successful in India. Therefore, the Virgin brand and marketing strategies will definitely help Tata Indicom," the analyst said. "In fact, I won't be surprised if Aircel also enters into a similar brand franchise arrangement."

Globally, the MVNO model is experiencing phenomenal growth in the 3G space as these operators are able to connect to consumers by offering highly-specialized value-added services and superior branding experience. It has also helped bring down call charges by increasing competition in high-price markets.

Indian telecom operators have had to delay the launch of 3G services because the country's Department of Telecommunications (DoT) has yet to allocate 3G spectrum. The department plans to do so through an auction.

If MVNOs are allowed in India, this could pave the way for global MVNOs to enter the Indian telecom market through the 3G route.

Swati Prasad is a freelance IT writer based in India.