Mobile Virtual Network Operator

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1. What is MVNO?

Mobile Virtual Network Operator (MVNO) is a telecom operator, who doesn’t own licensed spectrum or network infrastructure, but provides mobile phone services by buying wholesale airtime from existing operators (MNO) and selling it to end-user.   They are also known as ‘switchless resellers’.

The Government of India is yet to clear the entry of MVNOs in the country. TRAI has already recommended licencing of MVNOs in 2008. However the final decision is still pending with the Department of Telecommunications (DoT).  In India currently Virgin Mobile is operating as a MVNO through a franchisee arrangement with Tata Teleservices.

Telecom operators who lost out in the 3G auction may explore the mobile virtual network operator (MVNO) route or franchisee deals with 3G operators. Even operators who won the 3G airwaves will be compelled to enter into such deals to ensure a pan-India rollout of their 3G services

Globally there are more than 350 MVNOs. These MVNOs are different from traditional telecom companies as they develop models around data services, music services, health services, luxury services and devices.  There are also MVNOs targeting certain consumer segments, for example tourists, foreign workers and youth markets. Another niche market has developed via the 3G networks, which provide MVNOs an opportunity to offer data multimedia services in addition to the existing low-cost voice and SMS.

2. TRAI recommendations

On 6th August 2008,TRAI has released recommendations on MVNOenabling the introduction of MVNOs in the Indian Telecom network. Department of Telecommunications (DoT) vide its letter dated 20th March, 2008 has sought TRAI’s recommendations on the need and timing for introduction of MVNO as well as terms and conditions of the license to be granted to such operators. The major recommendations of TRAI are

a. Licensing

MVNO will be treated as a distinct service provider with its own licensing and regulatory framework.  MVNO will be issued a renewable license for 20 years under Indian Telegraph Act. The license service area of MVNO will be same as that of parent MNO.

Any Indian Company having a net worth of Rs. 10 crore for Metro/ Category A, Rs. 5 crore for Category B and Rs. 3 crore for Category C service area and paid up capital of 10% of prescribed net worth and satisfying licence conditions such as FDI, substantial equity etc. are eligible to apply for MVNO licence.

There is no roll out obligations for MVNO. FDI limit is recommended at 74% same as MNO.

b. Agreement with MNO

Before applying for licence, an MVNO should get into an agreement with a MNO. Agreement terms between MNO and MVNO will be decided by market forces. There is no limit on number of MVNOs attached to an MNO. If agreement is terminated after licence is issued, the MVNO will require a fresh licence, for which it may have to sign a fresh agreement with another MNO. An MVNO cannot get attached to more than one MNO in same service area, while an MNO can have as many MVNOs.

c. Licence fee

TRAI has recommended that MVNO needs to pay an entry fee at 10% of an MNO’s entry fee.  MNO to pay the spectrum charges for utilization of spectrum by MVNO. Entry fees for MVNOs will be10% of MNOs subject to a maximum of Rs. 5 crore for Metro/ Category A, Rs. 3 crore for Category B and Rs. 1 crore for Category C service areas.  Annual licence fee will be the same as host MNO. However, the Interconnection charges will be based on commercial negotiation between MNO and MVNO which will be driven by market forces.

d. Business Model

There are three business models recommended by TRAI. An MVNO can offer full or intermediate or thin services. A Thin MVNO would offer services in its own brand without any infrastructure and a full MVNO could set up its own HLR, VLR, IN switches, MSC etc. However an MVNO is not allowed to set up Radio Access Network (RAN).

e. Responsibility of MNO and MVNO

An MVNO is responsible for mandatory activities like Subscriber verification, Customer Management and Service provisioning. The MNO is responsible for spectrum charges, number portability and interconnect agreements.

3.  Advantages of MVNO

MVNOs expand customer reach and generate additional revenue for the MNOs from the use of unused bandwidth. An MVNO can use the additional capacity being created for 3G services which will enhance the productivity and profitability of the MNOs.

The MVNOs serve the niche markets by offering wireless products customized to the end-user lifestyles, thus maximizing the demand for wireless data services.

However the some of the telecom observers are of the opinion that MVNO will not suit the Indian telecom market in view of constantly reducing tariffs, falling ARPU and low margins.

4.  Conclusion

The Government of India is seriously considering allowing the MVNO model in the country and a decision is expected very soon. As per the recent reports, the DoT is planning to permit the introduction of mobile virtual network operators (MVNOs) in the country as one way to bail out the eight new telecom companies that are reeling from low tariffs and intense competition. The new telecom operators were given licences in January 2008, but many have not been able to even roll out their services. MVNO model if approved, will allow foreign and Indian firms to the India’s telecom market without investing money on the expensive spectrum and network roll out. MVNO will be another game changer in the Indian Telecom industry.

Source by VS Moni

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