( Mobile Virtual Network Operator) Presentation on MVNO ( Mobile Virtual Network Operator)

Mobile virtual network operator A Mobile Virtual Network Operator (MVNO) is a company that provides mobile phone services but does not have its own licensed frequency allocation of radio spectrum, nor does it necessarily have all of the infrastructure required to provide mobile telephone service. MVNO purchase wholesale mobile minutes and resell to end-users.

MVNOs are roughly equivalent to the "switchless resellers“. It works independently of the mobile network operator and can set its own pricing structures, subject to the rates agreed with the MNO. They do not have their own SIM-cards and the services provided by service providers depend on the services of the hosting MNOs .

Background and history The emergence of the MVNO model in a market is often a result of two factors- 1) To lower the barriers for market entry and ultimately increase competition. 2) A strategic decision by an MNO looking to extend its existing operations and target niche or undeserved segments through a second or perhaps multiple brands.

The efficiency is obtained because an MVNO doesn’t incur the significant capital expenditure on spectrum and infrastructure that an MNO. The regulator forced Host Network Operators (HNO's) to open their network & it created a potential competitor for them. They were being forced into a commercial relationship that would eventually have a negative impact on its revenues.

Conversely and more recently many mobile network operators believe that there is merit in operating a wholesale MVNO business unit, to compliment their retail model. The first commercially successful MVNO in the UK was Virgin Mobile UK, launched in the United Kingdom in 1999 and now has over 4 million customers in the UK. Virgin replicated its UK success through its US operation Virgin Mobile USA.

Mobile operators and MVNOs There are three primary motivations for mobile operators to allow MVNOs on their networks. These are – Segmentation-driven strategies: Mobile operators often find it difficult to succeed in all customer segments. MVNOs are a way to implement a more specific marketing mix, whether alone or with partners and they can help attack specific, targeted segments. Network utilisation-driven strategies Many mobile operators have capacity, product and segment needs. An MVNO strategy can generate economies of scale for better network utilisation.

Product-driven strategies : MVNOs can help mobile operators target customers with specialised service requirements and get to customer niches that mobile operators cannot get to.

Virgin-Tata Deal Virgin Mobile is present in six countries — the US, the UK, France, South Africa, Australia and Canada. Virgin Mobile India, a 50:50 joint-venture between UK’s Virgin Group and Tata Teleservices (TTSL) It is based on co-branding/brand franchising model. Tata Tele will pay Virgin a royalty for the use of its brand and a share, per subscriber, of its future revenue. Tata Tele will take care of billing and customer care, refrain from selling airtime minutes in bulk to Virgin, and retain its subscribers.

What Virgin would do is bring its customer service expertise to the table and help Tata Tele train its call centre staff. This is a better way to enter into the growing Indian telecom market. There is no capex burden and the exit option is also easier. The urban youth mobile services revenue is expected to cross Rs 35,000 crore by 2010.

Controversy The Cellular Operators Association of India pointed out that the partnership between Virgin Group and Tata Teleservices has taken place through the back door under Mobile Virtual Network Operators (MVNO) route to enter into the Indian telecommunication market. The group further pointed out that the present Indian telecommunication licensing agreement clauses prevents buying of mobile capacity from an existing operator and subsequent selling of mobile services under its name is also prohibited under the law.

The authority of reallocation of spectrum lies with the Indian Department of Telecommunication. Pointing out that MVNO’s definition worldwide included two things — buying of bulk air time under contract from an operator & reselling of minutes as well as customer ownership, Tata Teleservices said, “None of these are applicable or relevant to TTL’s launch of Virgin Mobile branded services.”

As per the agreement, there would be two brands — Tata Indicomm and Virgin. While Tata Indicomm would be positioned as a mass-market brand, Virgin would be positioned as a youth brand.

Key Reasons for the deal The surveys and reports showed that Tata were not able to penetrate the youth segment as they had done with other customer segments. For the Tatas, the current move was an attempt to gain ground as they had a market share of less than 10% ( around 7.1%). The company had tied up with Virgin due to its better recall value and positioning among youth globally.

Advantages This deal gives it a first-mover advantage. Whenever regulations permit MVNOs to operate in India, Virgin would already be a recognised brand. When Tata Tele offer GSM services , the current relationship can be easily tweaked for a GSM run. It's a win-win situation for both sides. The move will give Virgin Mobile instant access to Pan-India network. Tata Tele they will get a recognized brand with a sound marketing plan to attract more subscribers.

Thus the operator gets to maximise returns on spectrum while the foreign player rakes in revenues without having to buy airtime. The high churn rate (once number portability kicks in) will also help them.

Indian Challenge Countries like India or China, where consumers are price-conscious, larger operators are in a better position to offer competitive pricing due to economies of scale. That may be a (better) way to enter the market, but they may have no significant market share at the end of the day. The profit margin of MVNOs rarely crosses 20%, and with the prepaid segment being a low-paying market, the business plan and positioning has to be right.

The brand hype will die after sometime, and then it will all boil down to quality of service, pricing and product suitability.

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