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MVNO – Is the idea really on?

The concept of MVNO:
Mobile Virtual Network Operator (MVNO) is a very interesting and successful concept worldwide, wherein the MVNO player offers mobile telecom services (similar to one being offered by mainstream telecom network operators) without actually owning telecom infrastructure and spectrum. Here, the MVNO purchases the bulk airtime from network operators and focuses on marketing it through innovative means.

MVNO advantage:
MVNO worldwide has been a win-win game for both the consumers and the network operators. The entry of MVNO in the mobile market raises the level of competition by providing consumers with a wider choice of service providers, a wider range of innovative value added services and competitive pricing plans. On the other hand, network operators will benefit on Optimal use of unused spectrum, additional revenue stram and focus on the core competencies.

There are especially 2 strategies that the MVNOs follow -
In the Mass market strategy, the MVNO caters to a larger audience by offering the basic services at competitive prices and survive on large absolute volume to make a profitable preposition. In the niche market strategy, the MVNO caters to a smaller audience by providing customized content and VAS and as a result a higher ARPU.

Critical success factors –
There are a few distinct factors, both external and internal, which determines the success of MVNO in any market place.
Mobile Number Portability – MNP has been seen globally to help MVNOs reach out and tap their target clients which otherwise could be difficult owing to the tendency of subscribers to retain their existing mobile numbers.

Introduction of 3G - The introduction of 3G services result in subscribers upgrade themselves from 2G to 3G platform, hence leading to vacant spectrum in 2G band. It is then that MVNOs come into play and purchase bulk time at competitive prices.

The global scenario –
There are currently about 360 planned or operational MVNOs worldwide. Countries including US (60), Netherlands (39), Germany (29), UK (25), Australia (22) and Denmark (16) have the most MVNOs.

India Scenario –
In August 2008, TRAI submitted its recommendations on need and timings of introduction of MVNO as well as terms and conditions of the license to be granted to MVNOs. The same were accepted by DOT in Feb 2009 and DOT is expected to issue detailed guidelines for MVNO after receipt of response by TRAI on certain issues raised by DOT

Given the crunch in the spectrum existing already, the concept of MVNOs may take some good amount of time to get established. The transition from 2G to 3G can only speed things up. But, as and when this concept takes roots, there will be a bunch of players who will gain immensely benefited.
This includes Telecom infra players like NuTek, It solution providers to Telecom segment like Tech Mahindra, Mobile VAS providers like Tanla and Onmobile and aspiring MVNOs like Future group.


To contact the equity analyst on this story: Arun Gopalan in Chennai at Arun@hbjcapital.com

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