Making a case for MVNOs in India

Background : Indian Telecom

The 3G auctions and the subsequent churn have created a few more operators in the already crowded Indian telecom space. This though, augurs well for everyone concerned. The new operators, especially the ones with pan Indian ambitions like Aircel, Uninor, Videocon, Spice and Virgin mobile are focusing on getting as much market share as possible by using:
  • Innovative OSS/BSS systems
  • Unique Marketing Strategies
  • Banking on Number Portability
A look at the numbers* reveal that most of these companies have a market share of anywhere between 0 to 6 percent with Aircel having the highest market share of 6%. Ideally any new company now joining the fray as a MVNO/Telecom Operator in India, will be one that targets a market share of anywhere around the 5% mark.

Long Tail

According to the Wikipedia:
"The Long Tail or long tail refers to the statistical property that a larger share of population rests within the tail of a probability distribution than observed under a 'normal' or Gaussian distribution."
Amazon and Netflix are cited as prime examples of the Long Tail principle. The Long Tail principle helps businesses realize a significant profit by selling many hard to find items at a high margin.

Blue Ocean Strategy

Blue Ocean Strategy is a strategy which helps an organization achieve high growth by creating a new demand in an uncontested market space. Blue Ocean is all about "Value Innovation". Value Innovation is the alignment of innovation with utility, price and cost principles. This in turn helps create uncontested market space which makes the competition irrelevant.

Requirements for starting a MVNO in India

Indian Company having a networth of Rs. 10 crore for Metro / Category A, Rs. 5 crore for Category B and Rs.3 crore for Category C service area, paid up capital of 10% of prescribed networth and satisfying 141 licence conditions such as FDI,substantial equity etc. is eligible to apply for MVNO licence. MVNO must get parented to an MNO in a service area. The license service area of MVNO will have to be the same as that of parent MNO. Arrangement/agreement between MNO and MVNO to be driven by market forces. No limit on number of MVNOs attached to an MNO. A MVNO will have to submit the agreement with MNO before issue of license to MVNO. MNO will be responsible for paying the spectrum charges for utilisation of spectrum by MVNO.
Rajesh at Emergic provides a more accurate figure and states that the total cost of a new MVNO is "Rs 80 crore for a national MVNO licence", adding that "My estimate is that this will require an investment of about Rs 200+ crore, and has the potential to deliver a topline of about Rs 2,000+ crore in 3 years for the market leader."

Consolidating my understanding of the current scenario, I believe that the Data/VAS based MVNO targetting a niche consumer base can definitely generate a large amount of income. Just as the blackberry is gaining in popularity as it provides a niche data service, there is an opportunity for the service provider to serve the "Long Tail" and yet bring in the profits.

* Numbers from Mohit Agarwal's article at Telecomcircle.


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