"Do No Evil" says the Devil

Google - Verizon Deal

The big news this week in the Telecom market is about the Google-Verizon deal that supposedly threatens Net Neutrality. Google CEO Eric Schmidt explained Google and Verizon's position on Net Neutrality, saying

"I want to make sure that everybody understands what we mean about it. What we mean is that if you have one data type, like video, you don't discriminate against one person's video in favor of another. It's OK to discriminate across different types...There is general agreement with Verizon and Google on this issue. The issues of wireless versus wireline get very messy...and that's really a Federal Communications Commission issue, not a Google issue."

The FCC it is believed is working on formalizing regulations for the deal and will come up with the same soon. The statement from the FCC chairman was encouraging as he said,

 "Any outcome, any deal that doesn’t preserve the freedom and openness of the Internet for consumers and entrepreneurs will be unacceptable"

The Obama government and the FCC are pushing for net neutrality, but a recent ruling by the courts in the Comcast - FCC case suggests that the judiciary might not agree to this. Lots of stories about the deals are doing the rounds and like many others I would like to believe that Google, which has created its huge fortune based on Net Neutrality will not undermine it yet.

What is Net Neutrality?

Net Neutrality means that any packet of data passing over the internet has the same right to bandwidth as any other. This ensures that every website and every "Type of Data" on the internet has the same right to bandwidth.  

Possible Implications of the Google-Verizon Deal

Dynamic charging introduced by Mobile Service Providers helps to improve bandwidth utilization and manage traffic. It has been generally observed that ISPs introduce some or the other form of discrimination to incentivize customers to surf some sites more than others. But till now, there have been few instances of the same getting reflected in business deals between ISPs and websites.

Google and Verizon, it seems have proposed a tiered system that helps discrimination based not on websites, but datatypes according to the statement by Google CEO. This implies that Verizon might want to create a system wherein videos are streamed faster as compared to data. This in turn will most definitely encourage higher video based traffic, resulting in better revenues for Verizon adding up to what it will receive from Google. And as far as Google is concerned, it will have a larger number of customers on Youtube due to faster speeds. It also seems that the deal will affect WiFi and mobile surfers surfing the internet on Verizon's 3.9 G LTE enabled network. Details though are scarce. 

Such a move has long been warranted, with the huge explosion in internet traffic and the seemingly insatiable demand for higher bandwidths. It might just come to a point when ISPs will allow consumers to access their pick of websites at the fastest speed and the rest much slower. The consumers benefit and so do the ISPs because of their deals with the websites in protecting for protecting the websites' clientele.

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.

MVNOs : Explained

What are MVNOs?

Mobile Virtual Network Operators are telecom operators which do not own any telecom infrastructure and yet survive in the market based on their strategic alliances with current MNOs - Mobile Network Operators. MVNOs usually buy MOUs - Minutes of Use in bulk from traditional mobile operators for sale to their own customers.

The introduction of MVNOs in the market is a natural progression towards having a free market and contributing to the efficient use of telecom infrastructure. A mature market is expected to provide the customer with choice. It often becomes difficult for a large operator to service such diverse requirements effectively. Such varied requirements could get well addressed by niche operators catering to specific customer segments. These operators create a structure that differentiates between wholesale and retail operators.

Method of Service Delivery

MVNOs deliver their own SIM cards and are also responsible for branding, marketing, billing and customer care. Some MVNOs have their own infrastructure whereas some do not own infrastructure but are based on services provided by it such as:-
• Tariff and service design control or
• Only pre-packaged services.
• Service implementation and differentiation
Based on their infrastructure, MVNOs can be classified as Skinny MVNO, Thin MVNO and Thick MVNO.

Symbiotic relationship between MNOs and MVNOs

MVNOs cannot exist without MNOs.
MNOs also derive a lot of benefit from MVNOs, such as:
• MVNOs help in expanding the market size and penetration.
• MVNOs help MNOs target specific segments where they are weak and create a wider customer base. A larger market helps all the players concerned. MVNOs follow a Blue Ocean strategy of creating an uncontested market by reconstructing market boundaries.
• MVNOs help provide specific products and Value Added Services to customers. Eg. Disney provides cartoons and entertainment and ESPN helps provide sports information to its client base.
• MVNOs help MNOs in effective network and bandwidth utilization.
• MVNOs also help MNOs lower operational costs which accrue in the form of billing, sales, customer services, marketing budgets as they directly buy minutes from MNOs.

MVNOs and Blue Ocean strategies

The MVNO model is about providing differentiated services and hence rather than fight the battle, they create a whole new battlefield of their own choice. This is what Blue Ocean strategies are all about and so MVNOs are the best vehicles of experimentation for enterprising entrepreneurs.

The different ways in which MVNOs operate around the world are:
Business MVNOs like BeyondMobile and Abica provide bespoke services to businesses.
Discount MVNOs provide cut-price call rates to market segments.
Lifestyle MVNOs like Helio focus on specific niche market demographics.
Advertising-funded MVNOs like Blyk or MOSH Mobile build revenues from advertising to give a set amount of free voice, text and content to their subscribers.
Ethnic MVNOs like Lebara target ethnic communities by providing inexpensive calls to their home country.
Tesco, a UK based retailer, started an MVNO with O2 and An Post, Ireland’s postal service started one with Vodafone.

Future of MVNOs

A lot of the MVNOs mentioned haven’t worked and there have been some high profile failures, notably that of Disney and ESPN. But the business model of MVNOs is still a lucrative one and there are more and more players joining in the fray. More about MVNOs in India soon.